In a white paper released, the Department of the Treasury, the Department of Housing and Urban Development and the Federal Housing Finance Agency outlined five principles to guide the creation of future foreclosure prevention programs. With many of the crisis-era homeowner assistance programs winding down at the end of 2016, the agencies said that accessibility, affordability, sustainability transparency and accountability should guide the development of new loss mitigation programs and encouraged investors and servicers to collaborate on developing and implementing new initiatives.
“With the retirement of [the Making Home Affordable program], the industry will shoulder more responsibility for assisting struggling homeowners through proprietary modifications and other loss mitigation programs,” the white paper said. “One of the important things we have learned from the crisis-era efforts is that a collaborative process results in better outcomes for all stakeholders. That lesson should not be forgotten as the industry takes a more prominent role in defining the future of loss mitigation.”
Between April 2009 and May 2016, 10.5 million homeowners received modifications or mortgage assistance arrangements that allowed them to avoid foreclosure. Among other things, the program created a standard for executing mortgage modifications across different servicers and investors.
The agencies said that any programs that will take the place of MHA should include simple, standardized, communicable processes that can be easily executed by both servicers and homeowners. They recommended that the “waterfall” approach to loan modifications — the current industry standard which involves applying capitalization, interest rate adjustment, term extension and principal forbearance or forgiveness to qualifying mortgages — be evaluated to see if improvements can be made that could lead to better borrower outcomes.
The white paper noted the importance of offering solutions early on for struggling borrowers, pointing to research suggesting that early intervention can decrease the risks of homeowners re-defaulting in the future. Additionally, the industry should consider how future loss mitigation programs will be overseen and how data will be collected and reported to the public to ensure accountability, the agencies said.