PMI Gets Aggressive on Loan Modifications

The PMI Group, Inc. (PMI) said late Friday that it had loosened its previous restrictions on loan modifications, in a clear effort to empower servicers to do more to keep troubled borrowers in their home. Essentially, the new guidelines allow mortgage servicers more leeway in determining a workout strategy than in the past, when most were bound by what was described by one servicing executive as a “lock-step” approach to loss mitigation. The new guidelines — which apply to all delinquent loans insured by PMI — allow a servicer to modify loan terms without PMI’s prior consent, and do not allow penalty or late charges to be capitalized into what a borrower owes. One source noted that few outside the industry understand just how large a role the MI companies play in any loss mitigation scenario. Since much of the servicer’s and investor’s ultimate loss severity totals are tied to a claims payment from the insurer, it’s the insurer’s guidelines that largely drive loss mitigation strategies offered to borrowers. “These are huge, empowering changes,” said one executive at large servicing shop. “In the past, we were sort of stuck with whatever program was outlined in the master policy, and had to wedge that around investor negotiations.” Perhaps just as powerful, PMI said its premium rate will remain unchanged — meaning that the extra leeway isn’t likely to come at an extra cost for servicers, investors, or borrowers. “Our servicing partners are working hard to modify qualified loans as quickly as possible,” said John Jelavich, PMI’s vice president of homeownership preservation initiatives. “This expansion of our servicing partners’ delegated authority to modify loans will expedite the loan modification process and assist our servicers’ efforts to keep more borrowers in their homes.” For more information, visit http://www.pmigroup.com.