On Thursday, the Urban Institute released a report calling for an update of the mortgage servicing industry. The report calls for an update that would make it easier for creditworthy borrowers to get a mortgage.
This would allow borrowers with less-than-perfect credit scores to have access to getting a mortgage.
The report, which is written by Institute experts Alanna McCargo and Laurie Goodman, said mortgage services have historically been a “behind-the-scenes” component of the industry, until the financial crisis in 2008.
“After the 2008 housing crisis, servicers were thrust into the spotlight as an unprecedented number of borrowers started having trouble paying their mortgages and entered foreclosure,” McCargo and Goodman said. “In response to the crisis, Federal agencies created new regulations designed to help servicers quickly resolve and minimize homeowner losses. While many of these measures were helpful during the crisis, stabilizing mounting losses and establishing needed standards, they remain on the books today, even while delinquency and foreclosure rates have stabilized from crisis levels.”
The two experts said that despite a drastic change in the regulatory scheme, much of the servicing side still remains unchanged.
“In recent years, we have witnessed the rapid growth of nonbank servicers, which manage more than half the nation’s mortgage loans and have introduced new regulatory, risk, and capital questions that have not been fully addressed,” they said. “New servicing business models have also emerged, with subservicing and specialized servicers entering the market and many traditional servicers exiting the market.”
Since the 2008 financial crisis, several high-profile companies have exited the servicing industry. Most recently, Citimortgage agreed to a deal transferring all of their servicing rights. New Residential Investment Corp. agreed to pay Citigroup $950 million for their servicing rights. This deal also came with Fannie Mae- and Freddie Mac-backed loans with $97 billion in outstanding balances.
“The financial crisis revealed the housing finance system’s vulnerability, as well as the centrality and general underappreciation of the role of mortgage servicers, who manage over $10.2 trillion in single-family mortgage servicing outstanding nationally,” they said. “The viability, liquidity, and stability of servicing over the long term are critical and must be part of the conversation about how we comprehensively reform our housing finance system.”
As for how the market is effecting the mortgage servicing side, last month, they were projecting that the rising rates would help them more than they will hurt them, according to mortgageorb.com.