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Notes from the Hill: Mortgage Servicing

CoreLogic Hosts Event on Emerging Issues in the Servicing Industry

Russell McIntyre    |    Housing Policy

In late August, CoreLogic partnered with the Urban Institute to co-host a seminar that highlighted Emerging Issues in Mortgage Servicing. The event was the ninth in our Sunset Seminar series, sponsored by CoreLogic and the Urban Institute, which focuses on public policy issues relevant to the mortgage market, aiming to bring together policymakers, practitioners and analysts for lively conversations on topics of current importance.

Renewed interest in the mortgage servicing industry produced a room filled to capacity in downtown Washington, D.C., with audience members representing the entire spectrum of interested parties: government regulators, legislative staffers, banking experts, data companies, housing industry leaders, trade associations, think tanks and more. The event was also broadcast live by C-SPAN, providing CoreLogic a valuable evening television slot to promote our expertise and showcase our influence in the public policy realm.

The discussion was led by Faith Schwartz, formerly the Senior Vice President of Government & Public Affairs at CoreLogic, and now Principal at her advisory firm Housing Finance Strategies. She represented CoreLogic in her duties as moderator, facilitating discussion among the following housing industry experts:

  • Ed DeMarco – Senior Fellow, Milken Institute’s Center for Financial Markets
  • Laurie Goodman – Co-Director, Urban Institute’s Housing Finance Policy Center
  • Raghu Kakumanu – Senior Vice President of Housing Policy and Capital Markets, Wells Fargo
  • Laurie Maggiano – Program Manager of Servicing and Secondary Markets, Consumer Financial Protection Bureau
  • Michael Stegman – Fellow, Bipartisan Policy Center

Ed DeMarco began the conversation by stating the need for service compensation reform, an idea that was reiterated by the other panelists throughout the evening. He addressed the ever-widening gap between the cost of servicing a performing loan and the cost of servicing a non-performing loan, stating that the current 25-basis-point-minimum servicing fee does not accurately reflect either of those costs. DeMarco promoted more flexibility in servicing compensation, stating that current standards were thrown together during the midst of the housing crisis nearly a decade ago and that it may now be time to review them.

Laurie Goodman agreed that the current compensation structure is misaligned; relative to gross revenue, it costs too much to service non-performing loans and too little to service performing loans. She highlighted the fact that technological advances have helped to bring down the cost of performance servicing over the past several years. Laurie also detailed the split between banks and nonbanks on the amount of unpaid principal balance (UPB) they’ve serviced, showing that the share of outstanding UPB held by the top five servicers has decreased every year since 2009 and that the total UPB of mortgages that is being serviced by subservicers has risen every quarter since mid-2014.

Fellow panelist Michael Stegman reiterated the need to create a compensation structure that better aligns incentives with the escalating costs of servicing nonperforming loans. He brought up a failed effort to embed similar language into the Johnson-Crapo housing reform legislation that passed out of the Senate Banking Committee in 2014. He went on to describe what a new system might look like, a compensation structure broken down into three parts: a base servicing fee for performing loans, monetary incentives for the servicer when the loan(s) goes into delinquency, and a series of one-time event-driven fees.

CoreLogic and the Urban Institute are currently in the early stages of planning the tenth installment of our Sunset Seminar series and more information will be released in the months ahead.

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