Home > Mortgages > Regulators Want Big Mortgage Changes

Comments 0 Comments

BankOwned_Nick_Bastian_FlickrIf you have a mortgage you worry you may not be able to repay, bank regulators in all 50 states are pushing a solution for you. In a 27-page letter sent to some of the nation’s largest banks, state and federal regulators demanded sweeping changes to how the mortgage loan servicing industry operates.

The proposal could make it easier for some homeowners to renegotiate the amount they owe. It also would force the industry to become more transparent, and give regulators more power to detect abuses.

After five months of investigation by bank regulators in all 50 states, plus three federal agencies, the proposal is widely seen as the opening salvo in what will likely be a long negotiation between regulators and banks over how the industry will change, and what penalties it may face as a result of shoddy loan practices that helped cause the economic crisis of 2007 and 2008.

Regulators are not releasing the proposal itself.

“The [New York] Times and the [Wall Street] Journal and pretty much everyone else has called and asked for it,” Geoff Greenspan, spokesman for Iowa Attorney General Tom Miller, told Credit.com. “I’m under a pretty clear directive that I cannot release it.”

Nevertheless, members of the banking industry have shared copies of the proposal with journalists. According to reports by American Banker, The New York Times and the Wall Street Journal, some of the letter’s more important proposals include:

– Loan servicers would be pressured to modify more loans. As we have covered in the past, the industry has been criticized by consumer advocates, and sued by investors, for refusing to modify loans to keep homeowners in their houses. (Banks’ refusal to modify loans has been detrimental to investors, many of whom would rather receive some income on their investments than none at all.)

[Article: HAMP Fails to Save Homeowners from Foreclosure]

– Servicers would have to share with federal regulators their formulas for determining “net present value.” This is the elusive “secret sauce” that servicers use to determine whether it makes financial sense for them to modify loans. Servicers have claimed this is proprietary information, while consumer advocates have alleged it’s just a hocus-pocus excuse for not modifying loans.

– Improved technology and record-keeping practices. The “robo-signer” scandal and other court cases have shown that, in many cases, servicers lack the paperwork required to prove they actually own the loans they claim to own, and therefore lack the standing to modify or foreclose. The letter proposes technology upgrades and process improvements to fix that.

– Improved disclosure and appeal procedures, so that homeowners facing foreclosure are provided all the relevant paperwork, and given an opportunity for an administrative appeal, before the case goes to court.

– Changing the Obama administration’s Home Affordable Modification Program to make it easier to convert changes from trial modifications to permanent ones. As we reported, servicers and the program itself have been criticized for offering 740,240 trial modifications by the end of January, but making only 539,493 of them permanent, well short of the program’s goal to make over 3 million mortgages more affordable.

[Featured products: Monitor your credit reports and scores]

Image: Nick Bastian

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team