Over one million homes were foreclosed upon last year, and an estimated 8-10 million homes still face foreclosure. As things stand now, homeowners who try to work with their lenders to modify their loans will often find themselves facing a nightmare of lost paperwork, conflicting advice, and delays that ultimately cost them their homes. U.S. Senators Jeff Merkley (D-OR) and Olympia Snowe (R-ME) hope to help change that. They have introduced legislation to “encourage good behavior” by servicers.
The Regulation of Mortgage Servicing Act will:
- Require lenders to create a single point of contact for borrowers.
- End the dual track process of foreclosing while negotiating a modification.
- Provide a third-party review before sending a family to foreclosure.
Loan servicing horror stories have become common since the collapse of the housing market. Homeowners have reported sending reams of requested documentation to their servicers, only to be told it’s been lost. Or they have been told to stop paying their mortgage in order to be considered for relief, only to discover that foreclosure proceedings were started as a result of the missed payments.
[Related Article: JP Morgan Chief Admits Foreclosure Process Is a Mess]
Holding servicers’ feet to the fire will no doubt help some homeowners save their homes. But will it be enough? With an estimated 28% of homes underwater, better behavior from servicers may not go far enough. CNN reports that in a town hall that aired this morning, President Obama named “housing ‘the biggest headwind on the economy right now,’ (and) broached two relatively new ideas for the White House: Longer-term mortgage modifications and principal reductions ‘in some cases.'”
Reducing the principal balance for homeowners who owe more than their homes are worth was one of the approaches the President advocated during his campaign, but has not emphasized since. It’s more complicated than most people realize, in part because most mortgages have been securitized and sold to investors. Still, advocates of this approach believe it’s the only way to stabilize the housing market, which is estimated to drop another 8% this year, according to the real estate information firm Zillow.
[Related Article: Solving the Foreclosure Mess: Let's Get Serious]
The Regulation of Mortgage Servicing Act is a no brainer, and should be enacted quickly. But Congress shouldn’t stop there. It needs to do whatever it takes to stop the downward spiral of the housing market—and the strain it places on our economy—and keep responsible homeowners in their homes.
Image: Nick Bastian, via Flickr.com