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The Board of Governors of the Commercial Mortgage Securities Association (CMSA), a trade organization dedicated to the commercial real continued on page 19
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O APRIL 2010
The Mortgage Bankers Association (MBA) has announced that it has developed a concept for a new forbearance program that would allow qualified borrowers who had lost their jobs to remain in their
CMSA changes name to CRE Finance Council
The Test!
ALABAMA MORTGAGE PROFESSIONAL MAGAZINE
MBA proposes forbearance program to help unemployed borrowers
homes while they seek new employment. According to the proposed program, loan servicers would reduce the borrower’s mortgage payment to an affordable amount for up to nine months while the homeowner looked for employment. “The vast majority of new distressed borrowers we are seeing involve the loss of income,” said John A. Courson, MBA president and chief executive officer. “This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification.” Under the MBA’s proposal, loan servicers that participate in this program would reduce monthly payments to an affordable level based on household income. Borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be re-employed within nine months of losing his or her job at 75 percent of the borrower’s previous salary. The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once reemployed, the borrower would be evaluated for a modification under the Obama Administration’s Home Affordable Modification Program (HAMP). “Recent statistics show that the average unemployed U.S. worker stays unemployed for between six and seven months,” added Courson. “That is a long time for a borrower with a dramatic drop in income to stay current on their mortgage. Further, borrowers with such a precipitous drop in income can’t qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job.” MBA suggests that some participating servicers would need access to special loans through the U.S. Treasury to supply funds to servicers so they could continue to advance payments to investors during the extended forbearance period. The program would need to be voluntary and flexible due to financial accounting considerations. MBA created this program through a special task force of its members. MBA also consulted with Fannie Mae and Freddie Mac. Recently, MBA representatives met with officials from the White House, the Department of Treasury and the Department of Housing & Urban Development (HUD) to present the proposal. For more information, visit www.mortgagebankers.org.
www.NationalMortgageProfessional.com O
“We’re identifying lending industry situations in FICO Score Trends that to our knowledge have never been seen before,” said Dr. Mark Greene, chief executive officer of FICO. “Economic instability is creating unknown risk in lenders’ credit portfolios as well as counter-intuitive trends in consumer behavior. While the FICO 8 score continues to prove its unprecedented power in rank-ordering consumers for risk, even low-risk consumers are changing the value they give different credit lines. As the CARD Act goes into effect next week, it likely will create additional, unhelpful pressures on the banking business.” In FICO Score Trends, company experts found new evidence that lenders tightened their criteria for new loans in 2008-2009 and began “cherry picking” the kinds of borrowers to whom they would extend credit. Mortgage loans opened last year between April and October reflected significantly tighter standards than in prior years. In 2005, nearly 46 percent of consumers who opened a new mortgage had a FICO score less than 700. In 2008 this percentage had dropped to just 25 percent of the newly booked mortgage population. Other industry sectors experienced similar shifts. In the bankcard sector in 2005, 51 percent of consumers with a new credit card had FICO scores less than 700. That percentage dropped to just 38 percent in 2008. As lenders tightened their credit standards, it became correspondingly more difficult for consumers with delinquencies in their credit histories and lower FICO scores to qualify for additional credit. FICO also examined FICO Score Trends to learn how credit risk of real estate loans and bankcards varied across U.S. regions. The company found the most dramatic shift in the Pacific region. In 2005, bankcards were 6.4 times more likely to default than were mortgage loans. That percentage dropped to only 1.3 times riskier in 2009. Consumers in the midwest region demonstrated the smallest relative change. Bankcards were 2.5 times more risky of default than were mortgages in 2005, but bankcards were just 1.5 times more risky of default by 2009. Borrowers in the Northeast continue to present the least amount of default risk nationally for real estate loans. For more information, visit www.fico.com.
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