The ASF represents the interests of third-party/private-party securitization in the secondary mortgage market. Its guidelines apply to a vast number of subprime and Alt-A mortgage pools that were structured into bonds by issuers other than those named Fannie Mae (FNM: 27.44, -1.08%), Freddie Mac, (FRE: 26.17, -0.53%), or Ginnie Mae.
“Servicers are legally obligated to mitigate losses and maximize recoveries on each mortgage loan, acting in the best interests of the investors in a securitization trust comprised of these loans,” said Tom Deutsch, deputy executive director of the American Securitization Forum. “Borrower credit counseling is one of several tools servicers can use to preserve homeownership and prevent foreclosure, which is the best solution for borrowers and investors alike.”
The ASF had first signaled in October of last year that credit counseling fees should be interpreted as “servicing advances,” and considered for reimbursement out of a securitization trust, but did not at the time establish formal policies and procedures surrounding when and how trusts would cover the fees. The upshot, HW was told, was that servicers couldn’t really act on the notion that counseling fees would be reimbursed.
“It really depended on whatever trust was involved in the deal,” said one source, who asked not to be named.
Fannie Mae introduced a formal policy for HOPE Hotline referrals by servicers in January, in a move that signaled an industry-wide shift towards support for credit counseling — especially in the face of loss mitigation departments that have been simply overwhelmed by calls from troubled borrowers.
“This should come as a help for some servicers,” said HW’s source, a servicing exec who asked that his name not be used. “Knowing what is considered an advance, when, and how much is allowable sets some sort of standard going forward.”
Most of the subprime mortgages that comprise the lion’s share of default activity thus far are involved in so-called private-party securitizations that fall outside of the purview of the GSEs — in fact, during the go-go years of 2005-2007, the third-party securitization market actually trumped the GSE-led MBS market in terms of issuance volume.
The new ASF guidance recommends that servicers reimburse up to $150 out of securitization trust proceeds for any approved counseling session. Other specific recommendations include “contracting with quality and trusted counseling organizations,” ensuring that the counseling organization involved help servicers collect information relevant to loss mitigation evaluations. Counseling expenses should be reimbursed regardless of the outcome of a loss mitigation effort, as well, the ASF document says.
Loans are eligible for counseling reimbursement if they are in delinquency, current but where default is imminent or reasonably foreseeable, in loss mitigation with extenuating circumstances such as a rate reset coming in six months, within 30 days of a foreclosure sale, or where the servicer documents the individual counseling expense had a net present value benefit, the ASF said.
For more information, visit http://www.americansecuritization.com.