Remarks by MBA Vice-Chairman J. David Motley, CMB During MBA’s National Mortgage Servicing Conference and Expo 2016
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[Please Note: These are prepared remarks. Mr. Motley may add to or subtract from these remarks during the course of his presentation. Portions of the text may be omitted during the speech.]
WASHINGTON, D.C. (February 17, 2016) - Orlando, FL (February 17, 2016)- J. David Motley, CMB, President of Colonial Savings, F.A. and its divisions -- Colonial National Mortgage and CU Members Mortgage, and 2016 Vice-Chairman of the Mortgage Bankers Association (MBA), offered the following remarks this morning during MBA's National Mortgage Servicing Conference and Expo 2016 in Orlando, FL.
Good Morning, MBA-- and welcome to Orlando!
I'm proud to be a mortgage servicer and to be here with so many of you this week. At this conference, we are now more than 2,000 strong representing an industry of nearly 150,000 servicing employees and the thousands of vendors that support us.
I'm proud of who we are and the business we do. We have helped millions of borrowers move forward through the financial downturn. Now it's time for us as an industry do the same. We are still overcoming some obstacles and remain committed to helping those borrowers still in need. However, now we must look to the future of servicing - for the health of the market, the growth of our business, and most importantly for the service we provide our customers.
Servicing is a complex business, even more so in this post-financial crisis world. In the Consumer Financial Protection Bureau, we have a new regulator with unprecedented oversight authority. The agency has instituted thousands of pages of regulations that affect the way we do business every day. Implementing the servicing rule's requirements necessitated system changes and staff training which had an incredible impact on our business operations, and bottom line.
Let me give you a little personal perspective from my company, Colonial Savings, and our operating divisions Colonial National Mortgage and CU Members Mortgage. We've been in the 'prime' mortgage servicing business for 60+ years. We survived the massive defaults in the "Oil Patch" in the 1980s and so far we've survived the most recent default "spike" that started in 2008. But we've never experienced the kind of prescriptive, regulatory requirements that have been imposed on us over the last two to three years.
In 2012, our delinquency rate was just over four percent. We never got above six percent, even in 2009. Our cost per loan serviced went from $130, a new high at the time, to $195 this year. Not because of increased defaults. In fact, our default rate has dropped to three percent overall. The increase in cost was primarily due to increased expense associated with new regulation and the people, systems and process changes necessary to implement those regulations.
Let's be clear right at the start - MBA and its members believe every consumer is entitled to quality customer service, timely communication, and a fair hearing if they fall behind on their mortgage payments. And that's why we've worked with policymakers to improve regulations so we can ensure the best quality service to our customers now and well into the future.
Most recently, we worked with the GSEs - Fannie Mae and Freddie Mac - for a reduction in compensatory fees through both extension of the timelines and raising the minimum invoice threshold. MBA's Dan McPheeters lead a group of us - originators and servicers - who worked with the GSEs and FHFA to create a specific framework to resolve servicing defects. I'd like to thank the MBA members that contributed to these efforts as well as the GSEs for their partnership with the industry. There was a tremendous amount of time and talent involved in that effort.
Duplicative and overly burdensome state regulations are presenting new layers of complexity for servicers and consumers. That's why MBA maintains a robust relationship with the Conference of State Bank Supervisors. We are working with CSBS, as well as individual state regulators and legislatures, to prevent unnecessary and overlapping regulations. I'm pleased to note that, thus far, the CSBS proposal has appropriately leveraged existing GSE standards on capital. It also tied requirements on servicing transfers and operational matters to CFPB or federal standards. The road to harmonization isn't always easy, but is attainable by working together.
We will continue working with FHA to improve processes around loss mitigation and property preservation. In response to comments filed by MBA and others, FHA recently withdrew a proposed rule that would have imposed maximum timelines on FHA claims.
We are very pleased that FHA, after consultation with MBA and other stakeholders, just last week, released mortgagee letters that will do three things to make servicing for FHA borrowers less costly and more efficient:
1) They extended reasonable diligence time-frames
2) They extended automatic extensions to align better with CFPB loss mitigation requirements, and
3) They raised property preservation allowances.
We have come a long way and have been largely successful because of our common goal. Industry, policymakers and consumer advocates all want to provide consumers with quality loan servicing. We want a strong servicing market that allows us to do business and works well for consumers.
We have a unique opportunity right now to think about the future. Mortgage delinquencies are low. Home interest rates are still low. We are nearing the end of the effects of the economic downturn, but we cannot forget that some consumers are still struggling. We've helped millions of borrowers and want to continue helping those who still need it.
We're helping struggling borrowers in two ways. First, our support for FHFA and FHA's non-performing loan sales remains strong. In addition to reducing taxpayer risk, these sales offer a second chance for some borrowers who would otherwise lose their homes. Protections for borrowers and requirements for servicers are in place and should be enforced. Non-performing loan sales have proven to be a useful tool that should be thoughtfully expanded. Finally, we will continue performing loss mitigation efforts to reach those that remain eligible for the crisis-era programs such as HAMP and HARP.
With the housing market performing well and on the upswing, now is the time for the servicers themselves and stakeholders to do an overall assessment of the industry. Servicing has become more expensive and much more complex these past few years. We want a system that allows us to serve our customers; to achieve this, servicing regulations must continue to evolve and we must remain engaged with regulators to help them get it right.
I've briefly mentioned the topic a couple of times, so let's look at loss mitigation again. We have made progress with the GSEs lowering their compensatory fees. This is an excellent step, but timelines should be continually re-assessed and updated to reflect both what constitutes good performance and the realities on the ground. FHA is also continuing to work on improving their loss mitigation processes. This is another positive step that will, if done right, encourage more lending to the low-to-middle- income and first-time homebuyers that FHA was created to serve.
Working with FHFA and the Treasury Department, we should begin thinking about how to best apply the lessons learned from borrowers through our experiences with the HAMP and HARP programs. Both programs were established to help struggling families remain in their homes. Both programs expire this year.
What will life be like after HAMP? Will there be a government administered replacement? There are many borrowers with trial modifications on the horizon and some can even still apply through the end of the year. During this wind-down period we should work with Treasury on the path forward.
Inevitably, we will experience another economic downturn in our lifetime. The point is we can either prepare now, applying the lessons learned in the last crisis, or we can wait until the government creates policy in a crisis. We've seen that movie and it's not pretty.
The time is now to work together - industry, policymakers, stakeholders and consumers - to develop a strong servicing system that provides the best customer service to our borrowers and continues to help those that are struggling to retain their homes
It's also time to look at the business of servicing. It's time to look five, ten or even more years ahead. Each of us does this with our personal careers, our own businesses, so why not do it with government policy? We must leverage our experience as an industry to work with stakeholders and develop the path forward together. Servicing-done right and well-provides a real value proposition to investors in addition to being a necessity for borrowers. We need to make sure that incentives in the market reflect this by rewarding good loan servicing and ensuring a deep and liquid market for servicing buyers and sellers.
Everyone knows that costs have risen while revenues have stayed basically flat. Due to increased regulatory attention, increased compliance burden, and large scale delinquencies, there has been a real need to modernize systems. But there's also a need for you to contribute to the greater good of the industry by working with policymakers for a strong, liquid market.
MBA provides you the outlets to get involved in the future direction of the servicing industry. Join and participate in the Mortgage Action Alliance-MAA, MBA's grassroots affiliate-and learn about MORPAC, MBA's political action committee.
Grassroots is a numbers game. MAA's motto is "the larger the group, the louder the voice", and as servicers we need to have a voice on the policy and regulatory issues that will shape our business and our future. One of the most important things you can do to support the industry outside of MAA and MORPAC is to attend the National Advocacy Conference. Join us in Washington, DC April 12-13 to discuss real estate finance industry issues with elected officials.
Learn about MBA's committees and roundtables to increase your activism and amplify our voice. For example, MBA's Residential Loan Administration Committee evaluates the impact of federal legislation and regulation on servicing operations, profitability and efficiency. We work with federal agencies and the GSEs to improve and streamline servicing requirements.
As I mentioned earlier, MBA members - more specifically our Task force on Servicing Rep and Warrant Relief - engaged and negotiated with the GSEs, and the effort paid off. We obtained greater clarity and transparency to the rules, provided servicers with the right to cure, significantly limited the instances where the GSEs can seek repurchase and created an Independent Dispute Resolution protocol.
My point is this: get involved in the future of policy, and get involved in the future of your business, because MBA has a lot of work to do this year.
Looking ahead at the legislative agenda for 2016, any meaningful legislative activity is unlikely before the "lame duck," post-election session of Congress. However, we're operating under the assumption that things can and will happen in the lame duck. MBA is doing a lot of advance planning, and laying the groundwork for our priorities, such as balanced CFPB/FHA enforcement protocols, as well as targeted regulatory relief that could improve access to credit.
Beyond the lame duck, we have to play the long game and work to influence the housing dialogue with Congress as windows of opportunity emerge; for example omnibus legislation or must-pass vehicles. Regardless of who wins the elections, we need to work collectively to create common sense, centrist proposals. No matter who controls the Senate in the next Congress, anything that passes still needs 60 votes, so proposals must have bipartisan appeal.
Next year, the National Flood Insurance Program will come up for congressional reauthorization. The NFIP has served - and will continue to serve in the foreseeable future - a critical need in helping homeowners protect one of their most valuable assets. NFIP has been vital to communities across the country that have struggled to rebuild after major flooding events.
But there is also no doubt the NFIP - now $23 billion in debt - must be reformed. The program, as currently structured, is not sustainable. The federal government cannot and should not bear the full burden of post -disaster recovery and rebuilding. As Congress recognized when it passed the Biggert-Waters Flood Insurance Reform Act of 2012, in order to ensure a stable, affordable, and sustainable flood insurance market, a private market for flood insurance must be allowed and encouraged to develop. Increasing private sector involvement also could benefit consumers by expanding available insurance options, lowering costs, and increasing the number of at-risk properties that are insured.
Nationwide availability of affordable flood insurance is important to expanding homeownership and building communities. MBA supports efforts by Congress and the Obama Administration to ensure the continued strength of the NFIP as well as the development of a private market for flood insurance.
Servicing regulations should continue to evolve and we need to offer our expertise to get them done right. So, in 2016, we want to work with regulators to:
‒ Ensure that future loss mitigation programs are developed in a thoughtful manner so they can be employed during the next credit down-cycle.
‒ Reduce regulatory overlap, duplicative or contradictory regulations, each of which lead to confusion. For example, current rules inhibit our efforts to call cell phones to offer loss mitigation. Yet mandates from the GSEs, FHA and CFPB require us to engage in earlier PROACTIVE outreach and calls to borrowers who appear to be in stress. Many people - particularly lower income folks - don't even have land lines anymore. This is just one conflict that must be rectified.
‒ Fine tune CFPB amendments to the servicing rule and help the industry implement them when they are released later this year.
‒ And, finally, ensure that regulation doesn't pick winners and losers by business model. Regulation should set standards that allow for innovation and creativity, governed by sensible regulation, in the servicing space.
In closing, let me leave you with this.
We have a choice. We can implement the regulatory changes. We can make sure we are compliant. We can spend our time and resources ensuring our companies are running smoothly. And then we can wait for the next set of policies to be created for us in a crisis.
Or we can decide right here, right now, to have a positive influence on the future of servicing. We can continue to be part of the solution for borrowers working with regulators and legislators. We can choose to be a part of the strategy team that sets our industry and consumers on the path for long-term success. We can decide to work with all stakeholders to ensure a liquid, safe, reliable servicing system five, ten or more years down the road.
We can decide to dwell on the past, or we can decide to learn from it. I choose to look forward and not behind. I choose our future.