As published in Scotsman Guide's Residential Edition, January 2011.
In 2006, the Center for Responsible Lending predicted an impending foreclosure epidemic. Few people listened. Here's your second chance. The center's chief operating officer, Deborah Goldstein, talks about that five-year-old prediction, how brokers can help end the foreclosure crisis and the "robosigner" scandal that unveiled even bigger trouble.
How was the center's 2006 prediction received, and how does it compare to what followed? We were called wildly pessimistic. Unfortunately, it turns out our estimates were too conservative. Since we issued that report, there have been 2.5 million homes lost, and there are a great many more foreclosures still coming. We grossly underestimated how foreclosures would cause additional foreclosures. We’re only midway through this crisis.
How can mortgage brokers help end the cycle? Push for more transparency and consistency in the foreclosure process and loan-modification process. Right now, we're in a situation where buyers coming in to the market can’t trust if a property's title is clear. They can't trust that there won't be more foreclosures in that neighborhood. They can’t trust property values. Until we restore confidence in what is happening on the foreclosure and loan-modification side, it's going to be very hard to restore confidence on the purchase side.
Also, support the efforts of the Consumer Financial Protection Bureau to implement the rules under the Dodd-Frank Act. Make sure prohibitions against steering and against refinancing borrowers into loans that are inappropriate get implemented. They'll build confidence in the mortgage market.
Where does the "robosigner" scandal fit in? It revealed some deep flaws about how foreclosures are handled, about if borrowers are getting an opportunity to be evaluated for nonforeclosure alternatives such as loan modifications. There need to be some serious changes to preserve the integrity of the market and stabilize mortgage lending.
What kind of changes? We need transparency around loss mitigation that occurs prior to foreclosure. For example, a requirement that before you foreclose you evaluate whether there's an option for finding the borrower a loan modification that would be in the investor's interest, the servicer's interest and the borrower's interest -- and that while that evaluation is taking place you don't continue to proceed with the foreclosure process.
We'd like to see servicers provide some kind of proof that they've engaged in loss mitigation. If a loan modification isn't feasible, provide some sort of transparent information and proof. We shouldn't be driving borrowers further into default.
Ultimately, what does it mean to be a responsible lender? A responsible lender makes fair and affordable loan products available to borrowers – products the borrowers can sustain over time.
Darrick Meneken is an associate editor at Scotsman Guide. Reach him at (800) 297-6061 or email@example.com.