Brief Servicing Is an Underappreciated Constraint on Credit Access
Laurie Goodman
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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.
Research Areas Wealth and financial well-being Housing finance Housing
Tags Federal housing programs and policies Housing markets Housing and the economy Single-family finance Agency securitization Credit availability Homeownership Nonagency securitization Financial products and services Opportunity and ownership Finance Family credit and debt
Policy Centers Housing Finance Policy Center