Lessons from HAMP are shaping the future of loss mitigation
The mortgage servicing industry has learned some lessons from the government’s Home Affordable Modification Program (HAMP), which expired in December. And it is applying those lessons to design more effective loss-mitigation programs.
The Federal Housing Finance Agency (FHFA) was thinking of HAMP when it designed its new Flex Modification framework. That got the agency looking at sustainability, accessibility, transparency, and affordability.
“One of the big takeaways from the housing crisis is that government can be impactful,” says Prasant Sar. The FHFA policy analyst joined a panel discussion at the recent Mortgage Bankers Association (MBA) National Mortgage Servicing Conference & Expo in Dallas, TX.
HAMP, he says, showed the industry the importance of standardization. Before the emergence of HAMP, that wasn’t on the radar for the mortgage industry. And HAMP has done more than that. It has brought “a massive sea-change” in the way mortgage servicers reach out and assist delinquent borrowers.
In September, the MBA unveiled its proposed One Mod. Working collaboratively, an MBA task force created the program. Co-chairs Alex McGillis of Quicken Loans and Erik Schmitt of JP Morgan Chase helped lead the effort. Their HAMP successor includes at least a 20 percent payment reduction for eligible borrowers. It also minimizes the excessive documentation that plagued the first version of HAMP.
“We learned that simplicity is genius,” says Michael Malloy, vice president of servicing at Quicken Loans and a panelist in the MBA discussion.
One Mod, Malloy says, moves the bar toward a simpler customer experience. The program provides positive outcomes for the investor at the same time as it brings meaningful payment relief to the borrower.
In December, Fannie Mae and Freddie Mac announced plans to replace HAMP, Standard Modification, and Streamlined Modification with Flex Modification. The new progream incorporates some components of all three.
Flex Modification simplifies the loss mitigation process for borrowers and servicers. The program is adjustable to accommodate regional differences in the housing market. And it uses additional forbearance limits to provide eligible borrowers with greater payment relief. This, too, was a collaborative effort. As part of its development, the GSEs spent 11 months reaching out to stakeholders.
As a result of collaboration, both Flex Mod and One Mod use the same rules for determining the borrower’s modified payment. And that provides consistency across the industry.
HAMP and Simplicity
The MBA panel said HAMP has provided a fertile learning ground for mortgage servicers. By working together to shape the post-HAMP world, servicers have been able to provide clarity and simplicity to homeowners and positive outcomes for investors.
One Mod co-leader Erik Schmitt notes there was gradual improvement in HAMP following its release in 2010.
“That evolution was very important so that we could continue to serve our customers, and keep their families in their home,” he says.
Servicers had to adapt quickly in a complex and fast-changing housing market, according to Schmitt. Over the course of time, JP Morgan Chase learned that loss-mitigation products needed to work in all environments, he says.
Early in the housing crisis, he says, the industry spent too much time trying to prevent customers who didn’t need assistance from gaining access to HAMP or other loss mitigation. That led to complex rules that made it harder to provide help to those who truly needed it.
The mortgage industry learned from that experience in developing One Mod and Flex Mod, he says.
“We’ve really evolved as an industry. We have refocused our efforts to make sure the products are accessible to all of our customers who need them,” he says. The programs also include controls for moral hazards.
The crisis also taught mortgage servicers that they needed to focus heavily on the borrower experience, early intervention, and simplicity, says Ivery Himes. She is the director of asset management with the Department of Housing and Urban Development. HUD, she says, also discovered the significance of working with nonprofit housing counselor partners.
“A lot of times the borrower does not trust the mortgage industry. But they may listen to someone who is outside the industry — the housing counselor,” she says. It was vital for servicers to make sure housing counselors understood all the options and industry terminology in order to help.
Also, there were many loss mitigation products in the marketplace at the time of the housing crisis. And that created a complex compliance review process for servicers and the government.
The industry has worked hard to simplify the product and review, Sar says. The investor, borrower, servicer, and government may be coming at loss mitigation from different perspectives. But they all have the same goal of housing sustainability.
Going forward, Malloy says he’d like to see mortgage servicers continue to collaborate.
“In default servicing, we all have the same goal. And it’s not about competitive advantage,” he says. “We all need to be better for our clients.”
Malloy drew applause when he suggested an even larger vision. He wants to see one set of default servicing rules for all delinquent loans — FHA, VA, GSE, or private investor-held. And he is seeking an automated and innovative framework that allows for efficient and fast decisions that benefit all stakeholders.
“I would love for us to have an industry conversation with folks in this room,” he says, on aligning all aspects of default servicing. “With our colleagues in the regulatory community, with the advocates, with investors.”