There is a "trust deficit" in the housing market today, according to FHA Commissioner Dave Stevens, speaking at a Mortgage Bankers Association conference on loan servicing in Washington DC today.
We've talked plenty on this blog about lack of consumer confidence in housing, mainly in the context of falling home prices. His point, though, is that loan servicing is just as much to blame.
Stevens told the conference that you cannot understate the "reputation challenge" facing the mortgage industry, as echo boomers who should be buying new homes but now choose to rent. This generation has been hearing all sorts of stories about troubled borrowers unable to reach their banks, paying on mortgages that have already been foreclosed, Robo-signers sitting in tiny cubicles pushing papers, or the latest about JP Morgan Chaseovercharging members of the military on their home loans. It's not an enticing market to enter, no matter what generation you're assigned.
Today FDIC Chairman Sheila Bair proposed a foreclosure "claims commission" to deal with borrowers who were wrongly foreclosed upon. She suggested it be "modeled on the BP or 9/11 claims commissions" and that it be funded by servicers. That went over like a lead balloon in the room full of mortgage bankers, and Bair knew it.
"Many in the servicing industry will resist a settlement such as this because it would impose much of the immediate financial cost on the major servicers themselves, but this would be shortsighted," noted Bair.
There's no question that more Americans are turning to rental housing over home ownership, whether by necessity or by choice. All you need do is look at today's housing starts numbers from the Commerce Department. Single family starts fell 9 percent month to month, while Multi-family surged 25 percent. Permits for Multi-family buildings, a sign of future construction, rose over 50 percent. Builders know where the demand is and where it will come.
The nation's home ownership rate has dropped precipitously from the height of the housing boom, and while fear of home prices and credit availability are the driving factors, distrust of the mortgage industry is right up there with them.
"Servicers did not build their operational capabilities; they're not treating consumers fairly with the right trained staff with the right processes to help them get through a very difficult time and deal with the large number of defaulting loans going on today," argues Stevens.
Banks would argue that they have built their ranks, adding hundreds or even thousands of workers to answer calls and help troubled borrowers, but we've seen the outcome of a lot of that. Untrained employees, lawyers paid extra incentives to ram foreclosures through the system, and a loss mitigation process that no matter how "streamlined" it now claims to be, is far from it.
Confidence comes from believing a system works, in good times and in bad. We're not there yet.