Mortgage Servicing Research

Urban institute research on mortgage servicing:

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.

Reforming the FHA’s Foreclosure and Conveyance Processes

In this report, the second in a series prepared by HFPC researchers with support from the mortgage servicing collaborative, we examine government loan modification products available for loans insured by the Federal Housing Administration (FHA), the US Department of Veterans Affairs (VA), and the US Department of Agriculture (USDA). We explore how FHA, VA, and USDA borrowers who fall behind on their payments are unlikely to receive adequate payment relief when the market interest rate is higher than the original note rate. We argue that, with some changes to the loan modification options at the FHA, VA, and USDA, current and future delinquent borrowers in rising interest rate environments could be better served.

Click here to read the accompanying fact sheet: Offering Effective Relief to Troubled Borrowers of Government-Insured Mortgages when Interest Rates Rise

Government Loan Modifications

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.

The Mortgage Servicing Collaborative

The role of nonbanks in servicing single-family mortgages has increased tremendously over the past five years, mostly at the expense of large depository institutions. In response, the government-sponsored enterprises (Fannie Mae and Freddie Mac) and Ginnie Mae have issued new capital, liquidity, and net worth requirements for servicers of their mortgages. We examine these new regulations and conclude that while the recent steps taken to ramp up nonbank regulation are a good starting point, more needs to be done to ensure government agencies and taxpayers are adequately protected against the risks posed by the nonbanks under all economic environments.

Nonbank Servicer Regulation: New Capital and Liquidity Requirements Don't Offer Enough Loss Protection

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.

Servicing Costs and the Rise of the Squeaky-Clean Loan

In July 2015, the Federal Housing Administration (FHA) proposed a rule with far-reaching implications for servicing FHA loans [RIN 2502-AJ23], but it has received surprisingly little attention. The proposed rule would strictly limit the maximum period for filing insurance claims with the FHA. As reflected in this brief, we are concerned that this rule will negatively impact access to credit for prospective FHA borrowers.

FHA’s Proposed Servicing Reforms Need More Thought

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.

Servicing Is an Underappreciated Constraint on Credit Access

Following the crisis, nonbank specialty servicers rapidly expanded their portfolios of distressed loans. This has contributed to a significant market change: in 2011, the 10 largest mortgage servicers were all banks; by 2013, only five of the top 10 were banks, and the other five were nonbank servicers. The rapid growth and lack of a federal regulator have contributed to significant, heated regulatory scrutiny. This commentary discusses major concerns raised about the largest nonbank servicers, focusing on the three fastest-growing large nonbank servicers. We explore the regulatory and market framework driving their striking growth, then address the major charges against them, in an effort to elevate the debate and inform sound policy.

Nonbank Specialty Servicers: What's the Big Deal?

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.

OASIS: A Securitization Born from MSR Transfers