Saving Face, If Not the House
After years of talking about "preserving homeownership," the mortgage servicing industry has a new buzzword: finding a "graceful exit" for seriously delinquent homeowners who do not qualify for loan modifications.
To move these borrowers out of their homes with a minimum of delay, friction or embarrassment, Fannie Mae and Freddie Mac are telling servicers to increase the use of alternatives to foreclosure such as short sales and deeds-in-lieu.
"Some people just are unwilling or unable to be helped," Eric Schuppenhauer, a Fannie senior vice president, said Wednesday at a Mortgage Bankers Association servicing conference in San Diego. "They now must go to some form of liquidation and hopefully a graceful exit from the home."
Foreclosure timetables "got a little crazy last year," he said, as servicers held off on filing default notices or taking title to properties while offering borrowers a chance to rework loan terms through the government's Home Affordable Modification Program.
Ingrid Beckles, Freddie's senior vice president of default asset management, told the conference there is greater "recognition that we need to come to some closure on the decisioning process."
More than 30% of the seriously delinquent loans held by Freddie are backed by vacant homes, she said. Many states have courts clogged with foreclosure filings.
"We're standing in line in Florida," Beckles said.
MBA Asks for a 'Bridge' Loan
None of this is to say the industry has given up on keeping borrowers in their homes — or on getting more government assistance in that endeavor.
The MBA unveiled a proposal Tuesday to have the Treasury Department lend money to servicers so they can grant forbearances to homeowners who have involuntarily lost their jobs. Such borrowers could get their payments reduced for as long as two years (though their situations would be periodically re-evaluated). The MBA called the plan a "bridge to Hamp": borrowers would be considered for the loan-mod program once they found new jobs or when the forbearance period ended.
During that period servicers would need to advance principal and interest to mortgage investors, taxes to municipalities and premiums to insurers. That's where the Treasury financing would come in. "There are hundreds of smaller servicers who won't have the cash or capital to make pass-throughs over a prolonged period," said John Courson, the MBA's president. The size of the proposed facility is yet to be determined.
Can such a plan fly given the public rage over government assistance to the financial industry and to delinquent homeowners? "This is not a bailout," Courson said. "This is a loan" that servicers would repay with interest. And while "strategic defaulters" who walk away from their homes are raising hackles, "I don't sense any pushback to trying to help the unemployed."
John Denney, the MBA's associate vice president of public policy, said the Treasury had not yet committed to the proposal.
"If we don't get a suicide threat once a week, it's a good week."