Excerpt from: Mortgage Perspectives
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| March 05, 2009 | | Ambitious new plan for loan modifications must include a system for control and certification. | For many months, policy makers have urged mortgage loan servicers to increase the pace of loan work-outs to reduce foreclosures and boost bank balance sheets with more performing loans. The pace of loan work-outs has remained slow, in part because loan servicers are not well-equipped to make loan modifications.
The Administration has responded with its new Making Home Affordable Plan, which includes incentives for loan servicers to modify loans – thousands of dollars for each loan work-out. For a full description of the Plan, click here.
Would that it were so easy…
For this plan to deliver on the President’s promise of control and transparency, it must - at a minimum - include a system to automatically give the loan servicer an approval at the time of the loan modification and to record, in an auditable way, the terms of the loan modification. The alternative (apparently contemplated in the Plan), is an IRS-style audit process months or years later.
In fact, the Administration has an opportunity now - at the beginning of this program - to put in place a system that would offer great value to servicers, would speed and control loan work-outs, and would give regulators new tools. For example, an automated system could provide the servicer with guidance in real time on the loan modification and would build a database of loan terms for oversight.
The President’s promise of transparency and fairness is extremely important, and fulfilling it in this program will require controls, certification and good systems.
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