MBA White Paper Addresses Future of Loss Mitigation

The Mortgage Bankers Association released a white paper, The Future of Loss Mitigation, which takes into consideration how lessons applied and learned during the COVID-19 pandemic should shape permanent loss mitigation policy.

The paper provides a comprehensive outlook on necessary policies to best preserve affordable homeownership for struggling borrowers and to protect communities, with a focus on policymakers needing to prioritize simplicity, standardization, and sustainability. The recommendations MBA highlights would help prepare the servicing industry ahead of the next adverse market event.

“Policymakers must provide the certainty necessary for the industry to transition beyond the pandemic by addressing two issues: 1) the necessary extension of the successful ‘temporary flexibilities’ into permanent solutions and 2) loss mitigation in a high-interest rate environment,” the paper said. “It will be essential for Congress, the administration and policymakers at all levels to take the coordinated actions necessary to ensure that servicers can continue to support struggling borrowers.”

The paper offers the following recommendations:

All

–Provide transparency throughout the policymaking process to allow opportunity for stakeholders to provide thoughtful design feedback, including on implementation hurdles and timeframes.

GSEs

–Expand payment deferral to resolve temporary hardships.

–Incorporate a 30-year modification into Flex Modification.

–Allow additional principal forbearance for borrowers with less than 80% post-modification MTMLTVs.

All Government Programs

–Limit required documentation to encourage seriously delinquent borrowers to qualify for a permanent solution.

–Preserve use of the partial claim to resolve temporary hardships and to combine with a modification.

–Consistently offer extended borrowers loan terms up to 480 months (or 40 years) from modification.

–Maintain use of targeted relief to ensure a borrower’s new payment is affordable.

VA

–Implement a permanent partial claim program.

FHA/USDA

–Implement the Payment Supplement Account for today’s high-interest rate environment.

CFPB

–Reform Regulation XX to unambiguously allow servicers to qualify borrowers for loss mitigation option based on streamlined application and improve the borrower experience.

Ginnie Mae Programs (FHA/VA/USDA)

–Change the Prospectus to allow borrowers to receive a payment reduction with a recast.

–Move loans into portfolio to offer borrowers additional opportunity to receive a home retention option only as a means of last resort.