Federal Agencies Issue White Paper on Future of Foreclosure Prevention

With federal homeowner assistance programs set to expire this December, federal agencies yesterday outlined principles to provide a foundation for any future loss mitigation programs.

In a white paper (https://www.treasury.gov/press-center/press-releases/Documents/guiding-principles-future-of-loss-mitigation.pdf), the Treasury Department, HUD and the Federal Housing Finance Agency examines lessons learned from the government’s financial crisis-era programs, calling the paper “one important part of an ongoing effort to assist the mortgage servicing industry and other stakeholders to develop a framework for the future of loss mitigation.”

“Over the past seven years, the foreclosure prevention programs established by Treasury, HUD and FHFA have transformed the way in which the mortgage servicing industry has interacted with and assisted struggling homeowners,” the paper said, noting through government programs and private sector efforts, 10.5 million modification and mortgage assistance arrangements were completed between April 2009 and this past May 31.

The government’s Making Home Affordable program and other homeowner assistance programs such as the Home Affordable Mortgage Program, first developed in 2009 at the beginning of the Obama Administration, will close at the end of December. With some exceptions, mortgage servicers will no longer be required to evaluate homeowners for a standard mortgage modification.
The paper, Guiding Principles for the Future of Loss Mitigation: How the Lessons Learned from the Financial Crisis Can Influence the Path Forward, discusses circumstances leading to creation of MHA and HAMP and measures their success.

“The financial crisis of 2008 revealed that the mortgage servicing industry was ill-equipped to adequately respond to the needs of struggling homeowners,” the paper said. “Indeed, there was no standard approach among mortgage servicers and investors about how to respond to homeowners who wanted to continue making payments, but were in need of mortgage assistance. Most solutions offered by servicers simply added unpaid interest and fees to the mortgage balance, which often resulted in higher–and thereby less sustainable–payments for homeowners, regardless of a hardship.”

The paper said HAMP “provided a standard for mortgage modifications that crossed mortgage servicer and investor types, with the goal of reducing struggling homeowners’ monthly mortgage payments to an affordable and sustainable amount.” As the program continued, the agencies expanded options by introducing additional loss mitigation programs and standard practices for homeowner outreach and engagement.

Today, the agencies said, the industry is “generally better prepared” to provide assistance to struggling homeowners than it was before the crisis, due in part to adoption of homeowner engagement standards including continuity of contact, solicitation timeframes and notice and appeal processes required by the Consumer Financial Protection Bureau.

The paper outlines five principles the agencies believe were essential to success of the government’s programs and to provide a foundation for any future loss mitigation programs. These principles include:

–Accessibility: Ensuring that there is a simple process in place for homeowners to seek mortgage assistance and that as many homeowners as possible are able to easily obtain the needed and appropriate level of assistance.
–Affordability: Providing homeowners with meaningful payment relief that addresses the needs of the homeowner, the servicer and the investor to support long-term performance.
–Sustainability: Offering solutions designed to resolve the delinquency and be effective long-term for the homeowner, the servicer and the investor.
–Transparency: Ensuring that the process to obtain assistance, and the terms of that assistance, are as clear and understandable as possible to homeowners, and that information about options and their utilization is available to the appropriate parties.
–Accountability: Ensuring that there is an appropriate level of oversight of the process to obtain mortgage assistance.

“Going forward, Treasury, HUD and FHFA will continue engaging with a variety of stakeholders–particularly mortgage servicers–to assess how foreclosure alternative options will incorporate and further develop the core principles presented in the white paper,” the agencies said.

The agencies said in lieu of MHA and HAMP, servicers and investors will need to use proprietary loss mitigation programs (either existing or new) and determine the appropriateness of such programs in a more economically stable, post-crisis environment. “Such a framework should incorporate–and modify as necessary–the best practices and guiding principles that have led to positive outcomes for all stakeholders, including homeowners, investors and servicers,” the paper said.