Mortgage Companies Sign State Deal in Hopes of Stemming Foreclosure Tide

The Hannah Report – April 7, 2008

A group of mortgage servicers joined Gov. Ted Strickland, Commerce Director Kimberly Zurz and Treasurer Richard Cordray on Monday to sign non-binding compacts aimed at helping keep Ohioans in their homes at a time when foreclosure filings are at record highs.

"Today we have a commitment from those who hold the paper on these homes," Strickland said at a press conference called to announce the deal. Six mortgage servicers sent representatives to sign the compacts, and Bill Cosgrove, president of the Ohio Mortgage Bankers Association, was present to represent an additional three companies who had agreed to deals.

Zurz estimated those nine lenders represent more than half of Ohio's mortgage market, and she said the state is still negotiating with other companies in the hopes of affecting more homeowners.

The compacts, which extend into next summer, operate on six principles that address the companies' willingness to renegotiate loan terms and commit staff and resources to loan counseling.

Each compact is different, but Zurz pointed out tenets common to most or all of them, including a willingness to lock in the introductory rate on adjustable-rate mortgages for five years, agreements to streamline the process for modifying loans and agreements to notify borrowers months ahead of time about when their interest rates will be changed.

"Historic" was the word Strickland and others used repeatedly to describe the initiative, saying no such agreements had ever been signed before.

"The industry's never been here before," Cosgrove said.

Strickland had floated the idea of a compact with mortgage servicers in the fall but was not satisfied with the response he received. Since then, Strickland and Zurz said they had been spending time in negotiation with individual companies.

Cordray said the mortgage companies realized that allowing thousands upon thousands of homes to be foreclosed was not a sustainable business plan in Ohio.

"It is in their self interest to work out loan modifications for those people, to keep these people in their homes," he said.

"We're looking forward to more loan servicers understanding their self interest in a larger sense."

The compacts are not legally binding, so companies wouldn't face any official penalties for not complying, but Strickland suggested that the court of public opinion would hold them to account.

"These major companies ... are putting their honor and their prestige on the line," the governor said. Their reputations are "hugely important" to their ability to do business, he said.

"No one said the Declaration of Independence was legally binding, but a lot of people paid attention to it."

The nine mortgage servicers who signed compacts are the following: Carrington Mortgage Services, Citi, GMAC ResCap/Homecomings Financial, HSBC Finance Corp., Ocwen Financial Corp., Option One Mortgage, Saxon Mortgage Services, Select Portfolio Servicing and Litton Loan Servicing.

The six principles the state and mortgage servicers formulated to guide the compacts are the following:
• "Willingness to engage in substantial and large-scale loan modification effort for adjustable rate mortgage resets and subprime mortgages."

• "Willingness to modify loans to the extent permissible within existing fiduciary, contractual or other legal obligations and in accordance with prudent mortgage lending and servicing practices."

• "Willingness to identify, evaluate and make good faith attempts to contact at-risk or defaulting borrowers as soon as possible."

• "Willingness to create incentives for staff and foreclosure counsel to modify loans rather than foreclose."

• "Willingness to report progress to the Ohio Department of Commerce."

• "Willingness to enter into a non-binding agreement with the state for some defined period of time. (The agreements extend to June 30, 2009.)"

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Press Release

Westlake, OH -- Nov 9, 2007

 

Bill Cosgrove, President of the Ohio Mortgage Bankers Association issued the following statement in response to the Ohio Governor’s news conference discussing the proposed Compact to help preserve homeownership.

 

"The Ohio Mortgage Bankers Association as Members of the National Mortgage Bankers Association, regret that the MBA and their mortgage servicing members could not finalize a mutually acceptable Compact agreement with Ohio Officials.

 

 Progress has been made. OMBA encourages the administration to conduct a summit with mortgage loan servicers operating in Ohio.

 

The Ohio Mortgage Bankers Association is committed to serving the home financing needs and promoting successful homeownership for all Ohioans.

 

 We look forward on continuing this important work with Governor Strickland, Attorney General Dann and Director Zurz along with the National MBA and the mortgage servicers operating in Ohio towards our mutual goal of helping Ohioans preserve homeownership."