In this brief, the fifth in a series prepared by HFPC researchers with support from the mortgage servicing collaborative, the authors examine three options for the mortgage servicing compensation structure: (1) retain the status quo, (2) move to a fee-for-service model, and (3) move to a central default utility model. The authors discuss the pros and cons of each scenario and assess how each option would perform under various conditions. The authors do not recommend a single option, but articulate considerations of each to help inform future policy discussions on mortgage servicing compensation. There are differing views on the issue, where some suggest servicing compensation must be changed to better align servicing costs and revenues for performing and nonperforming loans in a manner that will improve outcomes for servicers and consumers, while others believe that the present compensation model, coupled with post-crisis reforms and the recommendations from the previous MSC briefs, can promote an efficient servicing market with minimal risk of disruption. 

In this brief, the third in a series prepared by HFPC researchers with support from the mortgage servicing collaborative, the authors address how the Federal Housing Administration (FHA) foreclosure and conveyance processes can be changed to bring down costs and create efficiencies. With proprietary data provided by Collaborative members, we explore foreclosure related costs and processes for FHA-insured loans. Specifically, we examine:

• How changes to the foreclosure timeline can increase efficiency; and
• How to improve the FHA conveyance process and reduce costs for the FHA, neighborhoods, consumers, and servicers.

The authors conclude that the current FHA foreclosure and property disposition processes result in avoidable delays, costs, and losses for HUD and servicers that are eventually passed on to neighborhoods and consumers in the form of depressed property values, neighborhood blight and reduced access to FHA credit for future borrowers.

In this brief, the first in a series prepared by HFPC researchers with support from the mortgage servicing collaborative, we review how the mortgage servicing industry has changed over time and explain the significance of servicing to a wide variety of stakeholders. This brief sets the stage for mortgage servicing policy reforms.

This article examines the heightened and uncertain cost of servicing delinquent mortgage loans as a major contributor to the current excessively tight credit box. This is an update to the December 16, 2014 brief “Servicing Is an Underappreciated Constraint on Credit Access.” While the Federal Housing Finance Agency has made great strides in lowering the costs and reducing uncertainty for lenders, some further refinements are necessary. And servicing delinquent Federal Housing Administration loans presents an even greater challenge. To broaden access to credit, servicing issues are important and must be addressed.

This article was published in the February 2016 issue of Mortgage Banking.

The heightened and uncertain cost of servicing delinquent mortgage loans is a significant, although underappreciated, constraint on access to credit. Lenders can price loans to reflect the anticipated servicing costs, but it is very difficult to price for the uncertain costs of default servicing. The penalties resulting from not meeting the GSE and FHA timelines, along with restrictive and anachronistic limits on reasonable foreclosure expenses, create uncertainties that are difficult to quantify and price for. The result: lenders forgo lending to borrowers more likely to go delinquent. The FHFA has made great strides with recent changes to compensatory fees, but more needs to be done. Servicing delinquent FHA loans presents an even greater challenge. To expand the tight credit box, these servicing issues must be addressed.

Early in 2014, Ocwen Loan Servicing, the nations largest nonbank mortgage servicer, completed a new type of quasi-securitization to help Ocwen fund its servicing business, which has grown as mortgage servicing has shifted from depository institutions to nonbanks. This shift has occurred in response to Basel III regulations, which make it more costly than in the past for large banks to hold mortgage servicing rights. In this commentary, we describe the changing mortgage servicing market and the reasons for those changes. We then look at Ocwens new security, its purpose, and its appeal to investors.