Nearly two years after the "robo-signing" scandal forced a reboot of the nation's home-foreclosure process, mortgage servicers have begun the hard work of buffing up their industry's tarnished image after years of making life miserable for Americans struggling to hold on to their homes.
Changing the industry's bad behavior will be a slow and painful process for servicers who collect mortgage payments and manage the accounts on behalf of lenders, however. "They're a huge, inefficient, bureaucratic ship that doesn't operate well, and it's not going to turn itself around quickly. Just the day in, day out pulling of teeth you have to do [with servicers] is mind-numbing," said Daniel Lindsey, supervisory attorney at the Legal Assistance Foundation in Chicago, which helps delinquent homeowners avoid foreclosure.
David H. Stevens, the president and CEO of the Mortgage Bankers Association, acknowledged servicers' recent deficiencies but said the industry had changed its business model and that progress couldn't be denied.
"There are still mistakes being made, but it pales in comparison to what this environment was like in the early part of this housing crisis," Stevens said. "I think we are clearly on the precipice of that changing."
Early on, servicers admittedly were unprepared to handle the massive failures of unsustainable and exotic mortgages that had originated during the housing bubble. But after the problems resulted in federal consent orders against 17 servicers, a near-nationwide moratorium on foreclosures, a $25 billion national settlement to address past improprieties and federal plans for mandatory industry standards, the situation is starting to improve.
The national settlement negotiated by the federal government and the states has forced the nation's five largest servicers to beef up staffing, improve communication with borrowers, assign one person per account and provide greater accountability when executing foreclosure documents. Stevens called the requirements "extraordinary."
"I've been in the financial services market for three decades," he said. "There's never been standards like this."
Announced in February, the terms of the $25 billion settlement call for Ally Financial (formerly GMAC), Bank of America, Citi, JPMorgan Chase and Wells Fargo to provide $17 billion in principal reductions and loan modifications, up to $3 billion in refinancing relief, $1.5 billion to borrowers who lost their homes and another $1.5 billion to participating states.
While most of the financial relief spelled out in the settlement is yet to come, the agreement is bearing some early fruit. Loan counselors and attorneys say they're starting to see more loan modifications and principal reductions than at any time in recent memory.
Burt Hamrol, of South San Francisco, Calif., is an early benefactor of the settlement. The 51-year-old carpenter recently received a letter that said he'd been approved for a $297,000 principal reduction by Bank of America, after several years of battling its mortgage servicers.
"When I opened up the envelope and read the letter, I started crying," Hamrol said. "I'm going, 'No way. Really?' I'm just blown away by this."
The unexpected turn should provide Hamrol with a happy ending to a near-five-year odyssey that saw him denied loan modifications three times after his mortgage payment with Countrywide doubled from $1,800 to $3,600 per month.