What Mortgage Relief Should Look Like
At some point in the next few months, the US government will announce some new program to allow mortgage servicing to return to normal operations. This will include hundreds of thousands of properties facing foreclosure.
Let us hope that banking and mortgage regulators assimilate the lessons of the 2009-2011 recovery and offer homeowners the chance to get their mortgages reinstated with a program that fairly balances the needs of borrowers, whose loans can be returned to normal servicing, with lenders' right to collect.
The last time around, the HAMP program, all 1000 pages of regulations and rules, failed in that most homes in default needlessly got foreclosed. The rules were overly technical and favored foreclosing on the property regardless of the borrowers' ability to pay.
For me, the technical complexity meant business. But complexity comes at a price: most borrowers were challenged to get mortgage relief- most people did not understand how to present their personal financial story in the way required by the lenders and their servicers. The vast majority of people seeking relief failed to get it. They were challenged by the process itself as much as the form their information needed to take. By contrast, most people we represented got relief, we were able to present their information in a way their lenders understood and we understood the process as well as our counterparts at the banks.
This time around, we can do better. If I were writing the regulations for my own benefit, I would say make the forms as complex as possible and process unfathomable. Instead, I propose make a transparent process and simple document requirements.
The government should not reward servicers more for a foreclosure than a modification and the servicers should be required to hire US based points of contact.
The process should have teeth- bad faith by servicers or borrowers should have consequences. Denying someone mortgage relief when they obviously qualify is every bit as bad as sending in fraudulent pay stubs as proof of income. Cheating is never acceptable.
Let's get it right this time with a balanced relief program that actually works and is fair to banks and borrower alike.