Cleaning Up After the Storm

We’re getting closer to a resolution of the mess that came to light last fall, where the big banks were botching foreclosures so badly that the federal government had to step in and get tough with them.

The Wall Street Journal reported recently on the effort by those banks to clean up their act, in advance of a mid-June deadline. It sounds like this is moving in the right direction, as at least those banks the Journal talked to seemed to be “getting it” in terms of how they treat homeowners.

About two weeks ago, the feds came out with new guidelines that are intended to drive more successful loan modifications and keep foreclosures from taking so long. The regulations require that the lenders give each homeowner a single point of contact, one person or team that will handle their “case.” The idea is to keep homeowners from having to talk to someone different each time and getting bounced around a big, bureaucratic maze.

That’s a good solution, in theory. The challenge will be making it work in real life, with the lender’s assigned individual or team being responsive in their contacts with the homeowner. If not, all it will do is compound homeowners’ frustration in an already distressing situation.

Another requirement is that the lenders set “appropriate” deadlines, so homeowners know when they can expect a decision as to whether their loan can be modified. What prompted this was way too many instances where homeowners were strung along for months at a time, having to submit their loan and financial information over and over again, all because the lender didn’t act on it quickly enough and needed current data.

The guidelines don’t appear to define “appropriate,” so just as with the single point of contact requirement, we’ll have to see how this plays out in the real world.

Another guideline concerns staffing levels, meaning that lenders have to have a sufficient number of employees to deal with their problematic loans. Having too few employees to deal with the work was a big factor in the mess that developed last fall. Hopefully, the lessons that lenders learned then, coupled with the requirements under these new regulations, will bring improvement.

In a way, this situation is like the tornados that devastated Tuscaloosa and other parts of Alabama and the Southeast. The damage came quickly, but cleaning it up takes a long time and requires a lot of work. The difference is that when it comes to the loan mess, it was a storm that the lenders should have seen coming and should have been able to avert before it struck.

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