Motley: Servicers Seek Clarity from Washington

Mike Sorohan msorohan@mba.org

February 08, 2018

DALLAS--Mortgage Bankers Association Chairman Dave Motley, CMB, said legislators and federal regulators need to provide the mortgage servicing industry with greater clarity in which to operate, and to aid consumers.

DaveMotley"As we work with policymakers to address the legislative and regulatory burdens that prevent us from providing the service we want to give, we should always keep our families in mind," Motley said here yesterday at the MBA National Mortgage Servicing Conference & Expo. "We continue seeking clarity in the rules with written and reliable guidance all servicers can follow, and all consumers can understand."

Motley, President of Colonial Savings F.A., Fort Worth, Texas, said his company coined a motto: "Families, Not Files."

"Because we are supposed to be a source of information, expertise and help," Motley said. "It's not a file that needs help to avoid foreclosure; it's a family."

To achieve that sense of "family," Motley said the servicing industry needs alignment across all investors and guarantors--HUD/FHA, VA, the Justice Department, USDA and the government-sponsored enterprises (Fannie Mae and Freddie Mac). "We need all federal government agencies on board following the same standards," he said.

For example, Motley noted uncertainty still exists around FHA loan level certifications and DOJ enforcement standards under the False Claims Act. Though these have been used primarily to bring cases for origination issues, the risk is similar for FHA servicers who submit these certifications or claims for defaulted loans.

"HUD Secretary [Ben] Carson committed to address this issue at MBA's Annual Convention and we are continually following up with HUD in hopes that progress will be made in the near future," Motley said. "Ideally we can reach a point where lenders and servicers will only be liable for material errors that would have altered the decision to approve the loan for FHA insurance, and good-faith mistakes will not result in draconian punishments."

By determining loan defects through terms of insurability, FHA would provide greater certainty and clarity regarding the types of errors that can expose lenders to False Claims Act risk, Motley said. "Limiting this risk, along with reforms to lower the cost of servicing FHA loans, would encourage more robust participation in the FHA program," he said.

Servicers also need a cohesive framework in which to provide loss mitigation and alignment across investors and guarantors, Motley noted.

"We know what works in default servicing and should align towards those standards," Motley said. "Such changes would provide equitable outcomes that don't vary based on the particular government insurer or guarantor; such changes would reduce consumer confusion about available options and would provide servicers with a single playbook they need to follow."

With this in mind, an MBA Task Force comprising 35 members from 20 companies convened to draw upon the experiences of the financial crisis and the Home Affordable Modification Program to formulate universal principles that should be applied to a future loss mitigation program. The task force developed the One Mod Waterfall Proposal, incorporating four themes that drive successful loss mitigation - accessibility, affordability, sustainability and transparency (https://www.mba.org/issues/residential-issues/one-mod-a-post-hamp-loan-modification).

"Life after HAMP shouldn't be a guessing game," Motley said. "A unified framework, like the One-Mod proposal, offers clarity and predictability to both servicers and consumers."

Motley also noted the servicing industry needs flexibility in dealing with extraordinary, unexpected tragedies that have catastrophic impacts on people's homes and lives, such as last year's hurricanes in Florida, Texas and Puerto Rico and wildfires in California.

"MBA and our members get it," Motley said. "Because it's not a file that lost their home in a hurricane or wildfire--it's a family. Immediately at the onset of the hurricanes and flooding in Texas, Florida, the Southeast, and Puerto Rico, MBA deployed consumer and industry resources on its website to help families impacted by the devastating hurricanes--Basics like a checklist, along with tips for consumers on who to call, and links to disaster resources such as FEMA. These industry resources are a one-stop shop for all mortgage investor, insurer and guarantor guidance related to disaster responsiveness. Because when we're prepared, we can help our customers that much better."

Motley said servicers with customers in disaster-impacted areas are working round the clock to provide families what they need to rebuild their homes and their lives. "This is one of the hardest jobs for servicers and some of the most difficult times for families," he said. "We take each situation very personally because there is nothing more personal to someone than their home. And because these are families, not files."

Motley said through MBA, the servicing industry has an opportunity with a more business-friendly administration and Congress to make great changes. He noted, for example, that MBA achieved a positive outcome with a Basel III Accord's proposed treatment of mortgage servicing rights.

"Last year at this conference, I talked about the Basel III Accord's punitive treatment of mortgage servicing rights, and how the rule was bad for the entire industry," Motley said. "Largely, as the result of the efforts of MBA and its members, the three prudential regulators gave us a "pause" in the Basel implementation timeline last fall and subsequently proposed a simplification of the capital treatment that would raise the cap on MSAs from 10% to 25%. This was a huge success story."

Similarly, when the GOP tax plan passed the Senate Finance Committee, the bill contained a provision that would have required lenders who retain servicing to pay tax on their MSRs at the time the Mortgage Servicing Asset is created, not as the income is received under current law.

"This change in tax accounting for mortgage servicing rights would have had a devastating impact on the flow of capital that supports a robust and competitive real estate finance market," Motley said. It could have put a lot of us servicers out of business."

MBA jumped into action, Motley said. In addition to a "surgical" direct lobbying effort, MBA activated its Mortgage Action Alliance.

"We generated more than 9,000 letters to Capitol Hill and succeeded in getting an exclusion for mortgage servicing contracts in the final Senate bill and conference report," Motley said. "Because it's about families, not files."

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