UPDATE 3-US FHA head: Mortgage industry has ‘trust deficit’

*FHA chief pushes bankers boost effort on gov’t programs

*FHA expands servicer review in wake of foreclosure errors

*Short refinance program now considered by Fannie, Freddie
(Adds MBA comment)

By Al Yoon

ATLANTA, Oct 26 (BestGrowthStock) – The U.S. mortgage industry must
do more to establish trust with consumers and take stronger
steps to participate in government programs to help struggling
borrowers, the head of the Federal Housing Administration said
on Tuesday.

The industry faces “an enormous trust deficit,” FHA
Commissioner David Stevens said, after the discovery of errors
and possible fraud in foreclosure practices by mortgage
servicing companies have put a spotlight on the industry’s
shortcomings.

“There’s a reflection in the media and a reflection in the
industry that we aren’t being held accountable enough,” Stevens
said at a meeting of the Mortgage Bankers Association.

The FHA is expanding its review of five major servicers to
others in the wake of the foreclosure flap, he told reporters
after addressing a meeting of the Mortgage Bankers Association.
A preliminary study launched in May found compliance among some
servicers while others haven’t met obligations of borrowers or
taxpayers, he said.

Stevens said some bankers have simply refused to
participate in government efforts designed to help borrowers
and shore up the fragile housing market, such a new FHA program
to help refinance some of the millions of borrowers who are
underwater on their mortgage. A quarter of borrowers have a
loan whose principal tops the home’s value, sharply limiting
their abilities to save money by refinancing, or moving.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Take a Look-U.S. foreclosures under fire [ID:nN11106777]

Factbox-Foreclosure problems snowball [ID:nN06278011]

Breakingviews-Mortgage mess headlines anew[ID:nN19136285]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Frustrations come as banks and others in mortgage finance
have seen their profits fattened by low interest rates
engineered by the government, and through $148 billion in
taxpayer support of Fannie Mae and Freddie Mac, which provide
liquidity for lenders’ loan pipelines, he said. The “idea” that
banks are directing resources from servicing existing customers
to seek bigger profits is unacceptable, he said.

U.S. support is “creating success for these institutions
and they need to participate equally as much on the other
side,” Stevens told reporters after addressing the bankers.

This focus has sharpened in recent weeks as the errors in
foreclosure proceedings have surfaced, he said. Wrongdoings,
including the use of “robo-signers” — employees who signed
hundreds of foreclosure documents a day without inspecting them
— may be doing further harm to an industry that itself hasn’t
met the needs of greater accountability, he said.

SHORT REFI

The urgency of improvements in mortgage finance come as the
housing market teeters on the verge of another downturn, fueled
by persistently high unemployment, lack of access to credit and
soft consumer confidence. Prices of single-family homes fell
for a second straight month in August, the Standard &
Poor’s/Case Shiller report showed on Tuesday.

Falling home prices have exacerbated defaults because many
struggling borrowers find themselves unable to refinance or
sell their homes to pay off their mortgage

The lack of engagement in government housing efforts by the
private sector overall has been a mistake, Stevens told the
MBA, the lobbying group, which has 2,200 members.

“It’s time for all housing industry players to move beyond
rhetorical support for some of our new initiatives and
reestablish trust by fully participating in them,” Stevens said
in prepared remarks. “The importance of that commitment has
only grown with recent foreclosure revelations.”

Stevens said the short refinance option is resisted by some
banks, partly due to the complications when the lender — which
could also be the loan servicer — holds a second-lien loan on
the property. The second lien should be completely written down
before any loss on the main mortgage is taken, big investors
such as BlackRock Inc. contend.

The FHA is meeting with servicers to resolve this conflict,
Stevens said. In addition, Fannie Mae and Freddie Mac — which
he said initially did not consider participating — may have
taken on “a slightly different tone,” on using the principal
write-down option for loans that they control, he said.

“The FHA short refi is clearly the single most effective
way to do a principal write-down,” he said. “So far we have
seen a variable response. We know that many investors would
like a lot more of this done.”

The short refinance program has some “attractions” compared
with other FHA efforts, said the MBA Chief Executive Officer
John Courson, who added that he has echoed Stevens’ “call to
arms” for bankers to restore confidence in their industry.
(Editing by Jackie Frank)

UPDATE 3-US FHA head: Mortgage industry has ‘trust deficit’