Servicing for Mortgage Loans Loss Mitigation Strategies
FIL-76-2007 September 4, 2007
The federal financial agencies and the Conference of State Bank Supervisors encourage institutions and their subsidiaries that service mortgage loans to pursue strategies to mitigate losses while preserving affordable, sustainable mortgage obligations. The agencies have prepared the attached "Statement on Loss Mitigation Strategies for Servicers of Residential Mortgages."
Many subprime and other mortgage loans have been transferred into securitization trusts. Servicing for these securitized loans are governed by the terms of the contract documents, typically referred to as Pooling and Servicing Agreements.
A significant number of adjustable-rate mortgages are scheduled to reset in the coming months. These resets may result in significant payment shock to borrowers, which can increase the likelihood of default.
Servicers of these loans should review the governing documents for the securitization trusts to determine the full extent of their authority to restructure loans that are delinquent or in default or are in imminent risk of default.
The governing documents may allow servicers to proactively contact borrowers at risk of default, assess whether default is reasonably foreseeable, and, if so, apply loss mitigation strategies designed to achieve sustainable mortgage obligations.
Loss mitigation techniques that preserve homeownership are generally less costly than foreclosure, particularly when applied before default.
When considering and implementing loss mitigation strategies, servicers are expected to treat consumers fairly and to adhere to all applicable legal requirements.
FDIC-Supervised Banks (Commercial and Savings)