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Servicers Pledge to Help at Foreclosure Summit
By Ted Cornwell
Relations between lenders and legislators can be pretty acrimonious, but what's been surprising this spring is how accommodating lenders have been to the concerns of politicians about rising foreclosures among subprime credit quality homeowners.
Chalk it up to good politics or good policy, but major players in the loan servicing industry have embraced calls for reaching out to borrowers to make it easier to refinance or workout problem loans. Some of the pressure for relief is coming from Sen. Chris Dodd, D-Conn., who chairs the Senate Banking Committee and is a candidate for his party's presidential nomination in 2008.
Many lenders, including Countrywide, JPMorgan Chase and Citigroup, have endorsed a set of principles for servicing risky nonprime loans, especially where homeowners face the possibility of foreclosure due to rate resets that dramatically increase their monthly bill.
After the summit he convened, Sen. Dodd praised lenders for their "collaboration and genuine care," saying the issue of rising subprime foreclosures threatens the nation's economy.
"The mere fact that this many prominent leaders sat around one table to truly tackle the problems in the subprime market was tremendously symbolic and I truly appreciate their participation and their commitment to preserving homeownership," Sen. Dodd said.
The concepts that most lenders agreed to support include agreement that foreclosures today are at an "unacceptably high" level; foreclosures are not in the interests of homeowners, communities, or the mortgage finance industry; and lenders need to discuss what steps can be taken to preserve homeownership whenever possible.
While those are laudable goals, they are not a blueprint for saving troubled borrowers who are seeing their monthly payments increase as rates reset and teaser rates expire. But already lenders and secondary market agencies are taking action.
Freddie Mac has pledged to purchase up to $20 billion in fixed-rate and hybrid ARM products that will assist homeowners affected by the subprime crisis. Washington Mutual in April promised to finance up to $2 billion of subprime rescue loans.
Citigroup, JPMorgan Chase, EMC, HSBC, Wells Fargo, Countrywide, Litton Loan servicing, the Mortgage Bankers Association and various others were among the industry participants.
But those hoping for a government bailout will be disappointed. In earlier congressional hearings, Sen. Dodd and the ranking Republican on the Senate banking committee, Richard Shelby of Alabama, largely ruled out providing government financing to bail out subprime borrowers.
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