To the Point With Bob–Mortgage Servicers: Diligently Serving Borrowers Through Constant Change

(To the Point with Bob is a periodic blog by MBA President & CEO Bob Broeksmit, CMB. You can view this and past blogs here)

Mortgage servicers have a vital function in the mortgage market and the wider economy. Helping homeowners in financial distress avoid foreclosure and stay in their homes is among their most important roles. Since the financial crisis, mortgage servicers have demonstrated their commitment to assisting distressed borrowers by diligently implementing new loss mitigation guidance issued by various investors. Recently, investors have issued several new loss mitigation programs to address challenges presented by today’s higher interest rates. For this reason, MBA urges greater collaboration and cooperation among the federal housing agencies when developing and implementing these extensive new policies.

The volume of loss mitigation policy changes servicers must implement over the next 18 months is daunting. Their resilience in supporting borrowers, preserving access to affordable homeownership, and fulfilling the housing missions of the federal agencies is being tested. A series of novel loss mitigation policies must be integrated into servicers’ existing processes seamlessly and without delay.

Servicers are currently focused on implementing two complex policy changes – the Veterans Affairs Servicing Purchase (VASP) program and the Federal Housing Administration’s (FHA) Payment Supplement. Both programs provide payment relief to borrowers through innovative solutions that substantially depart from traditional servicing loss mitigation practices and require major changes to all operational aspects of loan administration. This workload is or will be compounded by additional and expected changes from USDA, Fannie Mae and Freddie Mac, the Consumer Financial Protection Bureau, and FHA.  

A core focus of MBA’s advocacy is educating policymakers on the exhaustive change management practices servicers must make to implement new policies. MBA is doing everything in its power to ensure coming policy changes will not overwhelm servicers’ operational and technological capacity. Ultimately, timely guidance on deploying changes will benefit borrowers as well as lenders.

This education is especially necessary when regulators pursue aggressive—and in some cases unwarranted—oversight and criticism of our mortgage servicers. Rhetoric that seeks to sow fear and distrust of mortgage servicers among borrowers is unhelpful, such as the Bureau’s most recent Supervisory Highlights or HUD’s Office of Inspector General (HUD OIG) June 2023 report. We believe regulators must recognize the role of mortgage servicers as the primary means through which a borrower facing financial hardship receives assistance. Regulators must encourage borrowers to contact their servicer, not discourage them.

During the COVID-19 pandemic, mortgage servicing firms played an indispensable role in helping more than 8.5 million homeowners keep their homes, constantly updating loss mitigation rules and identifying needed long-term flexibilities and reforms. Servicers reconfigured their technology systems, processes, and borrower communications to execute ever-changing policies from government agencies, Fannie Mae and Freddie Mac, and private investors. They implemented appropriate procedures and controls, trained their staff, and conducted comprehensive risk assessments of these new processes with minimal lead time while also managing their own pandemic business challenges.

Like all sectors in mortgage banking, servicers must adapt to changes, so long as they are implemented thoughtfully. In a post-pandemic white paper, The Future of Loss Mitigation, and our related advocacy activities, we have suggested the following three principles to guide policymakers when considering any changes that will affect servicers’ operations:

Consistency: Servicing policy standards should align with each other whenever program parameters permit. Successful loan servicing is about operating scalable processes, so MBA emphasizes the need for simplified and streamlined policy standards.

Feasible timeframes: Significant policy changes and entirely new programs often require servicers to update technology and borrower-facing communications. Servicers need ample time to implement changes in management processes, address design risks, and assess the efficacy of new program developments.

A transparent and public process: Servicers and other stakeholders must have a fair opportunity to review the policies that could affect their business and the borrowers they serve before being held to a mandatory compliance deadline. As FHA and USDA have shown, a public process for feedback fosters collaboration with and among interested stakeholders and allows servicers the opportunity to prepare for forthcoming guidance. We encourage VA and FHFA to adopt similar mechanisms.

MBA and its mortgage servicer members remain committed to providing borrowers with positive experiences as new policies are announced. We will continue to partner with the agencies to ensure that servicers can successfully deliver these new programs to help borrowers stay in their homes.