U.S. mortgage servicers have agreed to a set of guidelines they say will reduce the number of foreclosures.
Servicer members of the HOPE NOW alliance have agreed to a new set of procedures and guidelines that establish a common, streamlined timetable for dealing with delinquent borrowers, according to an announcement today. The agreement, however, is not enforceable.
The guidelines call for servicers to send monthly letters to borrowers who are at least two months past due advising them to contact a counselor or their servicer. Subprime borrowers with adjustable-rate mortgages should be contacted 120 days ahead of a rate reset.
Direct communication with third-party home counseling agencies is recommended, including toll-free telephone lines, fax and e-mail channels. The group has set a goal of 5 percent as the maximum abandonment rate by borrowers attempting to make contact.
Among four new areas HOPE NOW servicers agree to help borrowers in is an establishment of a uniform, streamlined timetable for action by each mortgage servicer. This will give borrowers who contact their servicers an understanding of what actions will occur and when.
Another provision recommends servicers implement extensive procedures that enable borrowers to remain informed about the status of their requests for assistance. This provision also includes free counseling for borrowers who want to know about all their options.
The third aspect of the agreement establishes options that servicers agree to use to prevent foreclosure, including modifications, repayment plans, partial claims and temporary suspension of monthly payments. If there is a possibility that a deal can be worked out with a borrower, then servicers agree to delay foreclosure proceedings during the process.
The final provision of the agreement deals with short sales and second liens, which "up until now have been two of the most difficult foreclosure-related issues."
Servicers are encouraged to suspend foreclosure action for a reasonable period of time to allow a borrower enough time to review and close an approved short-sale transaction.
Second mortgage servicers are being asked to re-subordinate junior liens as long as the first mortgage payment doesn't increase and the second lien's equity position is not significantly decreased by the refinance or modification.
"Because of the complicated legal issues involved and the different procedures used by each of the servicers, the agreement was carefully developed between April and June 2008," HOPE NOW said. "Although many of the HOPE NOW mortgage servicers had been implementing their own version of some of these guidelines for some time, they are now committing to fully implementing these uniform principles and standards within 60 days."
The members of HOPE NOW, which service around 90 percent of all subprime borrowers, include 27 servicers.