For starters, various government guidelines on loan servicing would be replaced with tough national standards. Among the new rules, homeowners would be evaluated for loan modifications before any foreclosure — or foreclosure-related fee — is initiated. The bank analysis used to approve or reject modifications would be standardized and public, and failure by the bank to offer a modification when the analysis indicates one is warranted would be grounds for blocking any attempt to foreclose.
National servicing standards could succeed where antiforeclosure programs have failed, namely, in compelling banks to help clean up the mess they did so much to create.
In the Senate, Democrats Jack Reed and Sheldon Whitehouse of Rhode Island and Sherrod Brown of Ohio have introduced bills to establish standards. The new Consumer Financial Protection Bureau can also impose servicing rules. The Obama administration should champion national standards, and Congress and regulators should act — soon.
Standardization and transparency are important pieces of what needs to get done. But this isn’t just about stopping foreclosures or encouraging modifications int he strict sense that the Times is pushing. It’s also about regulating mortgage servicers – making sure that fee pyramiding schemes are stopped, improving billing documentation for homeowners, and enforcing existing laws for mortgage servicing. Mike Konczal’s piece yesterday has a lot of detail about what servicing standards should look like.