by JON PRIOR
Maryland’s Commissioner of Financial Regulation Mark Kaufman met with large servicers in 2009 to voice concerns about their ability to handle a growing number of foreclosures.
In his testimony Tuesday before the House Oversight and Government Reform Committee’s special hearing in Baltimore, Kaufman said he was assured that the mounting casework was manageable.
But by the fall of 2010, it became apparent these companies were overwhelmed and cutting corners, according to Kaufman. Many of the largest servicers had to freeze foreclosures and conduct reviews of thousands of affidavits signed without a review of the documentation. The result has been an investigation from the 50 state attorneys general and federal regulators, as well as a proposed settlement that reached the negotiation stage this week.
Between 2000 and 2007, the subprime share of all mortgages in Maryland increased to almost 12% from 1.5%. The government acted. In early 2007, Maryland Gov. Martin O’Malley formed the Homeownership Preservation Task Force, which identified legislative action and different strategies he could take, according to his testimony at Tuesday’s hearing.
New laws tightened credit, banned foreclosure rescue scams and formed mediation programs. Renters were given more protection. State lawmakers even revamped the foreclosure process, giving borrowers more notice before the home is sold.
In 2007, Kaufman’s office began working with 12 other state AGs to address the foreclosure crisis. Iowa AG Tom Miller spearheads the current investigation and settlement negotiations with the servicers.
“This group sought to work collaboratively with the mortgage servicing industry and other parties to identify solutions to the myriad of problems we were seeing in addressing the crisis,” Kaufman said.
The group gathered data submitted by the servicers. They published five reports between 2008 and 2010, analyzing foreclosure issues and how the servicers were responding.
“Unfortunately, this data and the related dialogue fell short of its potential as the Office of the Comptroller of the Currency forbade national banks from providing loss mitigation data to the states,” Kaufman said.
A spokesman for the OCC said the state’s request came at the same time the OCC was working to require large banks to submit a large quantity of data on the performance of first-lien mortgages and loss-mitigation activities.
“We require banks to submit this data on a monthly basis. The data is then verified, aggregated and reported in the OCC and OTS Mortgage Metrics Report. which is published quarterly,” the spokesman said. “That report has become a very respected and the most complete report of first-lien mortgages serviced by national banks and federal thrifts. There is no similar document for banks regulated at the state level or non-bank servicers.”
One report Kaufman’s office released in 2009 was meant to measure the impact of modifications on the borrower’s monthly payment.
“Shockingly, the results documented month after month that most of those who had successfully run the gauntlet of modification were paying more after completing the process than before,” Kaufman said. “With the economic downturn deepening, it seemed very likely that these modifications were doomed from the start.”
Shortly after these states began gathering data, the OCC started as well. Kaufman said they noted the OCC’s failure to include the information they found regarding modifications and instead merely publicized redefault rates. After a year of lobbying for them to report data on modifications, Kaufman said the OCC finally included the metric, and modification terms began to improve.
But when the 12 AGs began collecting data on foreclosure-related frustrations from homeowners, the OCC kept them from gaining enough information to catch the problem before 2010, Kaufman said. The result has been increased costs and further delays to already congested pipeline.
The OCC responded to the group in February 2008 through a letter from the Comptroller of the Currency John Dugan. While agreed the information was vital, the information states requested from national banks was unnecessary and may have caused legal problems.
“Instead we urge the to consider similarly expanded reporting, using comparable and consistent mortgage data metrics, by the mortgage sevicers that are subject to state oversight,” Dugan wrote.
Lenders filed more than 25,000 foreclosures in Maryland in the first half of 2010, but that number dropped to roughly 4,000 by the end of the year. While government officials said problems at the largest mortgage servicers constricted the pipeline, O’Malley said as lenders end their robo-signing moratoriums and “give the green light” to their attorneys to restart foreclosures, numbers will pick back up soon.
“As state officials, we are doing everything we can to battle this issue and to ensure that deserving homeowners retain their homes,” Kaufman said. “But the forces and players involved are bigger than any one community or state.”