Preserving neighborhoods.

Author:Jaffa, Alan
Position:COVER REPORT: DEFAULT SERVICING
 
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Protecting the quality of neighborhoods from foreclosure blight is the mutual goal of mortgage servicers and local governments. More collaboration--instead of more red tape--is the answer

The recent economic crisis has prompted comprehensive discussion over the last several years as we try to make sense and put into perspective what caused our economy to falter. The mortgage industry, in particular, has been in a state of constant change since the crisis began. [paragraph] As the mortgage industry continues to adjust to new and ever-changing regulatory forces, it becomes increasingly important for representatives from all facets of the industry to continue to partner and collaborate on best practices. That goes for all vendors that support the mortgage industry, including the field service industry. [paragraph] With many industry indicators at or nearing pre-crisis levels, the housing market is definitely on the right track. However, Industry experts do not foresee full stabilization for several more years. [paragraph] We see statistics on a monthly basis that provide insight into the current stock of vacant and abandoned properties, as well as those in real estate-owned (REO) status. Currently this housing stock remains above pre-crisis levels, and these homes--and the increasing pressure to maintain them in a way that satisfies the myriad local and municipal codes--have prompted conversations over the last several years around maintaining a home to "neighborhood-like" standards.

However, there has been no consistent definition as to what neighborhood-like standards are and what is required to adhere to those requirements.

The nature of the challenge

Loans serviced on behalf of the government-sponsored enterprises (GSEs), the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) have guidelines, fee schedules, delegated authority and other options to assist servicers in protecting and preserving properties.

The guidelines, however, do not include provisions to address all of the potential deficiencies that can result in local code violations. It is impossible for the guidelines to take into account all of these local requirements. Beyond that, the delegated authority to incur expenses to meet those local requirements has not been proffered to the servicing industry.

And yet, with the increase in oversight from government entities such as the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC), servicers are required to demonstrate their compliance with all local laws.

When a property goes into default and is vacated, servicers take over the maintenance of these properties to ensure they are secure, the asset is protected from deterioration and measures are taken to minimize the blight that is inherent when a property is unoccupied. However, because servicers do not have title to the property until the foreclosure sale...

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