Reports shows US mortgage industry should develop new policies for troubled borrowers
Date
7/31/2024 9:55:56 AM
(MENAFN) A recent report released on Tuesday emphasizes the need for the US mortgage industry to develop new intervention policies to better support distressed borrowers. The Mortgage Bankers Association (MBA) highlights the significant stress experienced in the housing market due to major events such as the 2008 global financial crisis and the coronavirus pandemic, which led to a rise in mortgage delinquencies.
The report suggests that reevaluating current mortgage design models, underwriting standards, and intervention policies could help alleviate the pressures from high levels of mortgage defaults. It stresses the importance of adapting these frameworks to better handle the challenges that arise during economic crises and prevent widespread foreclosures.
Joseph Tracy, a distinguished fellow at Purdue University and former senior Federal Reserve advisor, noted in the report that the mortgage industry has struggled with the impacts of major financial disruptions, often being ill-prepared to manage the surge in defaults and foreclosures. He argues that the industry must evolve in response to changing customer needs and economic conditions to effectively assist distressed borrowers.
The report outlines that the primary goal of intervening with distressed borrowers should not merely be to limit foreclosures or ensure the success of the intervention but to minimize the expected loss on the loan. To achieve this, it identifies two key strategies: mitigating cash-flow constraints and deleveraging borrowers. These approaches are designed to provide more effective support and reduce financial strain on borrowers facing significant hardships.
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