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SETTLEMENT MONITOR: SERVICERS NEED TO ADDRESS LOAN MOD, SPOC ISSUES After testing compliance among the five servicers subject to the $25 billion national mortgage settlement, monitor Joseph A. Smith concluded more work needs to be done due to persistent problems related to the loan modification process, providing a single point of contact (SPOC), and customer records. Under the settlement, the five servicers— Ally Financial, Bank of America, Citi, JPMorgan Chase, and Wells Fargo—agreed to adopt some 300 servicing standards. To verify compliance with the servicing standards, the monitor retained outside firms to test the servicers in 29 metrics. The monitor's compliance report issued in late June included two earlier testing periods (Q 3 and Q 4 2012) that did not cover all 29 metrics; the report also touched on initial disclosures from tests conducted in the first quarter of this year that did include all the metrics. Overall, testing for the first two periods resulted in three test fails, and Smith stated he can disclose five additional fails in the first quarter of this year. The three failures during the first two periods were in metrics 29 and 19. Metric 19 was the most frequently failed metric and dealt with a servicer's compliance when notifying borrowers of missing documents within five days of receiving a loan modification application. Wells Fargo and Citi both failed this metric during the first two periods, while Chase failed metric 29, which tests if the servicer terminates force-placed insurance coverage within 15 days of receiving evidence of existing coverage, according to the monitor's report. During the third period (January to March of this year), banks failed in four separate metrics: 19, 6, 23, and 20. Bank of America revealed potential failures in metrics 19 and 6, which tests for accurate information in a letter the servicers are required to send to borrowers before initiating foreclosure. Citi also disclosed a potential violation of metric 6, as well as metric 23, which measures notification of missing documents within 30 days of a short sale request. 34 Chase reported a potential violation of metric 20. It assesses adherence to timelines when deciding on modification applications, as well as notification to borrowers when requests are denied. Ally did not fail any metrics. "These findings, combined with the complaints I have heard from attorneys general, counselors, and distressed borrowers, tell me there is still work to be done," Smith said. "While I believe distressed servicing is better this year than it was last, it is not yet where it needs to be. My team and I will continue our efforts to improve it." To address the violations, the servicers are required to implement a correction action plan (CAP). According to Smith's report, Chase prepared a CAP for the force-placed insurance termination metric that has been approved by the monitor. Chase has also provided remediation by refunding premiums to more than 2,000 borrowers. Other banks that fell short in certain areas were reportedly working on proposed CAPs or implementing a CAP at the time the report was issued. The settlement also requires servicers to submit complaints gathered by offices of elected officials on behalf of their constituents. From October 2012 to March 2013, the monitor collected 59,586 complaints, of which 12,340 were because the SPOC was either not provided, difficult to deal with, or difficult to reach. Another 7,620 were because the SPOC was not responsive, while 6,127 complaints were because the bank failed to update the borrower's contact information and/or account balance. More than 4,500 borrowers also complained that the bank foreclosed on them after a loss mitigation application was submitted, while about 4,200 complained the bank did not take appropriate action to remediate inaccuracies in the borrower's account. The monitor also reviewed complaints submitted directly to the Office of Mortgage Settlement Oversight's website from May 2012 to May 2013. The office received 797 complaints. Failure to offer a loan modification or loss mitigation opportunity received 199 hits and was the most frequent complaint. Second was failure to provide a SPOC. EXPECTATION FOR RATES TO RISE SPIKES IN FANNIE MAE SURVEY Responses to Fannie Mae's National Housing Survey released last month indicate potential homebuyers may enter the purchase market sooner rather than later. According to the GSE's findings, 57 percent of respondents expect prices will continue to rise in the next 12 months—a survey high. The share of those expecting prices will fall remained flat at 7 percent. The average price change expectation was 3.8 percent, a slight drop from May's high of 3.9 percent. More notable was the pickup in mortgage rate expectations. The number of consumers expecting rates will rise over the next 12 months spiked 11 percentage points to 57 percent, another survey high. Only 4 percent said they expect rates to drop. "The spike in mortgage rate expectations this month seems to have had an impact on a number of the survey's indicators and may increase housing activity in the near term by driving urgency to buy," said Doug Duncan, SVP and chief economist at Fannie Mae. "Consumers may recognize that today's still favorable mortgage rates and homeownership affordability levels will recede over time. Given rising home and rental price expectations and improving personal financial attitudes, more prospective homebuyers may be deciding that now is the time to get off the fence." Freddie Mac issued an economic and housing outlook in June in which the company's economic team stressed that while the increase in mortgage rates coupled with rising home prices may dampen demand, the recent upward movement in rates is not enough to make housing unaffordable to median income earners. In fact, Freddie Mac's analysis showed mortgage rates would have to climb to nearly 7 percent before a median priced home is no longer affordable to median income earners in most parts of the country. During the second half of 2013, Freddie Mac expects the 30-year rate to land around 4 percent. This upturn in rates is forecast to cause refinance volume to fall sharply to about $1.1 trillion later this year, down from $1.5 trillion in 2012. KNOW THIS Real estate investors made an average gross profit of $18,391 on single-family home flips in the first half of 2013, according to RealtyTrac.