Ocwen, one of the leading mortgage servicers, has had success in doing principal write-downs on home mortgages so that families can stay in their homes, reported Ocwen’s Paul Koches at the annual Home Ownership Preservation Initiative conference on December 9. Using a proprietary underwriting system developed by Ocwen, the servicer has been able to modify mortgages in such a way as to reduce the principal amount owed, which helps many homeowners who currently owe more than their home is worth. For Ocwen loans where principal reductions have been approved, the company claims that only 3 percent of borrowers re-default.
Unfortunately, mortgages held by the government-sponsored enterprises Fannie Mae and Freddie Mac (GSEs) are not eligible for principal reduction under the policies of Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), the regulator and conservator of Fannie Mae and Freddie Mac. Since, in many cases, modification with principal reduction could result in a less costly outcome than foreclosure, principal reduction is one tool that could reduce the impact on taxpayers and produce higher returns to investors. DeMarco's refusal to consider principal reduction is troubling, especially when the GSEs buy more than 70 percent of all mortgages sold.
While refusing to protect taxpayers and investors by allowing principal reduction, the FHFA is suing the City of Chicago to halt enforcement of a new ordinance that holds servicers accountable for maintaining vacant properties in foreclosure. Woodstock's research documented the almost 1,900 vacant properties in Chicago that servicers likely walked away from after filing foreclosure actions. The ordinance requires servicers to register and maintain properties that otherwise blight neighborhoods and impose significant costs on the City.
We hope that Mr. DeMarco will rethink his positions or make room for a new director to act in the interests of homeowners, communities, taxpayers and investors.