As revelations about the banking industry’s behavior during the housing boom and the subsequent foreclosure crisis continue to emerge, federal regulators are considering a wide array of potential new regulations. Not only must they find a solution to the epidemic of apparently botched and wrongful foreclosures, but they also need to ensure that the millions of homeowners still facing foreclosure have a better chance at sustainable loan modifications.
The government-sponsored but voluntary foreclosure prevention program called HAMP has been widely criticized for failing to produce results. Critics across the nation and in Congress have urged regulators to put some teeth in their requests for banks to be more amenable to loan modifications.
Yet the mortgage servicing industry, which owns some $10.6 trillion in mortgages, is itself overwhelmed by the foreclosure crisis. There have been more than 3 million foreclosures since the real estate market collapse in 2006, and housing values — and the value of mortgages on those properties — have dropped precipitously.
The continuing crises in the housing industry and the foreclosure process are threatening the entire economy, says FDIC chairman Sheila Bair.
“If we fail to act decisively now to deal with the foreclosure crisis, we risk triggering a double-dip in U.S. housing markets,” Bair said in a January 19 speech. “The problem is serious, and the need for action is urgent.”
Regulators studying numerous rule changes to tighten oversight of foreclosures and loan modifications
According to an analysis in Bloomberg, federal and state regulators are considering a wide array of potential changes:
- A ban on banks pursuing foreclosure while a homeowner is in the negotiation process for a loan modification
- Independent reviews of rejected loan modifications
- A compensation fund for victims of wrongful foreclosure
- New fee structures for mortgage servicers to de-incentivize foreclosure and improve recordkeeping
- A requirement that servicers file every mortgage assignment in the local court instead of recording it with a private title database company
- A national, government-run property title registry and database
- Mandatory internal audits of banks’ title and foreclosure records and procedures
For a fuller description of these proposals, review the full Bloomberg article.
Source: Bloomberg, “U.S. Regulators Target Loan Servicers to Fix Foreclosures,” Prashant Gopal and Lorraine Woellert, January 26, 2011