The Path to Stabilization:
Leveraging HARP 2.0 and REO Rental Initiatives to Bring Back Neighborhoods
Commentary by Ingrid Beckles, April 2013 (re-posted from TurtleBay Advisors)
There’s no playbook for navigating through a crisis as profound as what the U.S. experienced—and continues to experience—as a result of the housing bust and subsequent mortgage delinquency and foreclosure collapse. That said, the overall response of the U.S government was commendable. They attacked the foreclosure crisis at the same time they sought to maintain liquidity in the housing finance market with the creation and launch of the Making Home Affordable Program which includes HAMP (Home Affordable Modification Program) and HARP (Home Affordable Refinance Program) and the Treasury’s ongoing mortgage bond purchase activity.
By assisting borrowers with staying in their homes, the program reduced neighborhood vacancy rates that sour further declines in home values and vandalism.Additionally, the administration launched the Neighborhood Stabilization Program Hardest Hit States initiatives to engage communities in solving their local challenges.
Still More to Do
There were missteps in the response, for sure. For example, the administration could have given mortgage servicers greater latitude in constructing the evaluation and execution of policy that would have likely resulted in a more streamlined evaluation and fulfillment process. Strategic insertion of Commercial-Off-The-Shelf (COTS) technology and enhanced specialized services could have reduced some documentation requirements, reduced the opportunity for fraud, and increased the effectiveness, timeliness and reach of the Making Home Affordable programs.
The administration did not fully comprehend the extend to which the operations of not only the largest servicers, but of Fannie and Freddie too, suffered from underinvestment in technology to keep pace with the nature of the originations these operations were required to service.
The administration has made positive changes to the Making Home Affordable programs, most notably to HARP 2.0. While they were slow to recognize that the 125% LTV cap was insufficient to keep pace with the speed and depth of housing devaluation to help so many of the homeowners who are current on their mortgages, the 2.0 changes were and continue to be a valuable and practical enhancement. During the first quarter of 2013 alone, more refis were completed than for the full year 2012. However, there remains much room to implement technologies and process redesign to support an improved business model for all portfolio management in general and default servicing processes such as short sales, repay plans, and forbearances. These changes, when properly done, quickly pay for themselves.
The industry is getting there. We need to stabilize neighborhoods that are still suffering from high concentrations of foreclosures and real estate-owned properties (REO). Getting more borrowers to take advantage of HARP 2.0 would be meaningful to the recovery. Prohibiting the lenders from placing further restrictions on the HARP 2.0 program is needed. Right now there is a lot of borrower fatigue and too many needless delays in remediating the legacy portfolios.
Under HARP 2.0, the GSEs (Fannie Mae and Freddie Mac) are pushing valuations and other information to servicers so the servicers can have a more effective conversation with borrowers. Combined with their own loan level data, the servicers are equipped to move to Point-of-Service decisionning in the servicing operations. Self-help web site enhancements that take the borrower’s application data, perform electronic data validation where possible and provided concrete direction for the borrowers keep borrowers engaged and vested in the resolution process. When borrowers see the amount of money they can save, or the equity they can rebuild, they are much more willing to follow through. This single point of contact (SPOC) for distressed borrowers is an excellent concept, but without the effective access to and routing of data to the SPOC and the inclusion of a decisioning/evaluation engine to properly set expectations, it has become no more than a ineffective information collection vehicle. . We need to invest more in servicing technology and process improvements. We need servicing to be treated with the same level of importance as origination. We need to be prepared as history shows, we will revisit these crises in the future.
The emergence and growing standardization of the SF Rental sector is also demonstrating a have a direct impact positive in stabilizing neighborhoods and valuation recovery. It is one avenue to bring private capital back into the housing sector. Recent IPO are being greeted with success and the issuance of securities backed by these portfolios is becoming a reality. The cautionary note is that this housing recovery has become virtually “homeownerless”; subprime products are re-emerging; the continued distended unemployment and excessively slow job creation rate waits in the shadows to keep distressed borrowers from recovering and give those who’ve been able to re-instate as second helping.
The housing sector is a primary contributor to this nation’s GDP. We sit at the precipice of forming the foundations for housing policy that will serve the next generation. We can tweak the existing or we can revolutionize the execution processes and standards. We need to get this right.