Mortgage Servicers Fearing On Oncoming Foreclosure Moratorium?

An article from American Banker makes the following observation on the trouble mortgage servicing companies may face if a 90-day federal moratorium is imposed on foreclosures:

• With pressure mounting for Congress to enact a 90-day moratorium on home foreclosures, mortgage servicers are warning that the move could have the perverse effect of prolonging the housing downturn.

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• Pooling and servicing agreements typically require that servicers advance all the principal and interest payments, as well as tax, insurance, maintenance, and foreclosure costs, to investors regardless of whether the borrower is paying. Servicers get reimbursed for expenses incurred while a loan is delinquent but only after the property goes into foreclosure, so getting repaid can take nine months to a year.

• A foreclosure moratorium would indefinitely extend the advances that servicers pay to investors and come as borrowing facilities that servicers rely on to make advance payments are strained by the liquidity crunch.(1)

For more, see Why Foreclosure Relief Worries Many Servicers.

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(1) According to the story, the chief financial officer of a New York buyer and servicer of distressed loans likened the state of the servicing industry to the "I Love Lucy" episode in which Lucy is furiously grabbing chocolates off a fast-moving conveyor belt. "The borrowers are just piling up, and servicers are inundated and overwhelmed with calls they can't answer, short sales they can't complete, and not enough staff," he said. "They need more manpower." MortgageServicingIssuesAlpha