BarCap expects industry pushback on mortgage servicing proposal

Barclays Capital analysts expect mortgage servicers to push back against steeper requirements in the federal foreclosure investigation’s proposed settlement this week. The 50 state attorneys general pushed into the negotiation process this week by submitting a 27-page proposal to servicers found to be foreclosing improperly on homeowners. If adopted, the rules would stretch foreclosure timelines and add more checkpoints and requirements at various stages of the loss mitigation process. Therefore, mortgage servicers will likely try to argue down some of the clauses, BarCap said. A spokesperson at Iowa AG Tom Miller’s office told HousingWire that the proposal is preliminary and there has been no draft of fines or penalties yet. Once an agreement is reached, the settlement would be a set of “legal binding” requirements that would dictate how these companies service the loans. One of the largest proposals on the table is the end of dual-tracking, a process through which the servicer continues the foreclosure process while offering a modification. According to the proposal, the foreclosure start would be delayed until the borrower is considered for the Home Affordable Modification Program, proprietary programs and other loss-mitigation strategies. “There are even some efforts to streamline the process of modification by putting limits on how much time servicers would have to respond to each part of the process; however, we think that the sheer magnitude of new processes/work required by servicers to implement this would mean that foreclosure timelines would be extended,” BarCap analysts said. Another proposal would prohibit a servicer from foreclosing on a borrower if he or she made all three payments during the three-month trial stage of HAMP. The top eight servicers in the program canceled 565,058 trials as of January and started or completed foreclosures on more than 110,000 of them. Bank of America (BAC) Executive Vice President, Terry Laughlin told investors Tuesday 14 of 100 delinquent loans never made it to permanent mod through the program and that not everyone can get one even through proprietary programs. “We think that most borrowers are currently going through a modification evaluation before being foreclosed upon. That said, greater scrutiny of every modification denial through independent review and the power to reverse the decision should, at the margin, increase modifications,” BarCap said. In the end though, BarCap analysts said that the most progress in getting the servicers to do more is by outlining incentives to do so. The Federal Housing Finance Agency is working with Fannie Mae and Freddie Mac to retool servicer compensation to make it profitable when handling delinquent loans. “HAMP and proprietary modification re-default rates have been improving for some time, and servicers will likely find it easier to modify borrowers through programs for which they have systems set up and do not have to pay from their pockets,” BarCap said. Write to Jon Prior. Follow him on Twitter: @JonAPrior