Below is Mr. Kittle’s oral testimony, as prepared for delivery.

“Mister Chairman, Ranking Member Bachus, thank you for the opportunity to appear before you again.  I am pleased to discuss solutions to the situation in the mortgage market, and what servicers are doing to help keep families in their homes.

None of us wants a family to lose its home, and MBA members are devoting significant time and resources to finding ways to help borrowers keep their homes.  The tools used to avoid foreclosure and retain a borrower’s home include forbearance and repayment plans, advance claims, loan modifications and refinances. Short sales and deeds in lieu of foreclosure are also used to avoid foreclosure in certain circumstances.  

It makes good economic sense for mortgage servicers to help borrowers who are in trouble.  The increase in mortgage delinquencies and foreclosures has brought significant attention to the costs of foreclosure to homeowners, communities and mortgage industry participants. 

While the impact of foreclosure upon homeowners and communities is clear to everyone, statements by some advocates and government officials indicate that confusion still exists about the impact of foreclosure upon industry participants particularly lenders, servicers and investors.

Mortgage lenders and servicers do not profit from foreclosures.  Every party to a foreclosure loses – the borrower, the community, the servicer, mortgage insurer and investor.  It is important to understand that profitability for the mortgage industry rests in keeping a loan current and, as such, the interests of the borrower and lender are mostly aligned.

As a recent CRS paper notes, foreclosure is a lengthy and extremely costly process for the industry and, generally, a losing financial proposition.   While losses can vary significantly, several independent studies have found the losses to be quite significant: over $50,000 per foreclosed home or as much as 30 to 60 percent of the outstanding loan balance.

If a homeowner misses a payment and becomes delinquent, the mortgage servicer will attempt multiple contacts with the homeowner in order to help that borrower workout the delinquency.  Servicers have several foreclosure prevention options that can get a borrower back on his or her feet.

Informal forbearance and repayment plans are the first tool servicers use to help borrowers.  Loan modifications are the next level of loss mitigation options.  A loan modification is a change in the underlying loan document.  It might extend the term of the loan, change the interest rate, change repayment terms or make other alterations.  Often features are combined, including rate reductions and term extensions. 

Servicers also use refinancing to assist borrowers who are current but are at risk of defaulting in the future or borrowers who are in the early stages of delinquency.  FHASecure is one example of a program targeted to borrowers with adjustable rate mortgages who are unable to make payments due to an increase in rate. 

The housing bill that just passed the House enhances FHA’s products by creating the “HOPE for Homeowners” program for delinquent borrowers who need to refinance their homes, but find they owe more than their homes are worth.

Servicers want to assist borrowers who are having difficulty paying their mortgages.  Servicers and investors have an economic incentive to avoid foreclosure.  As a result, servicers are performing a growing number of workouts, including modifications, as evidenced by the HOPE NOW Alliance data. 

Servicers have increased staff, have funded new technology, are sponsoring home retention workshops, are using third parties to go to the borrower’s home to facilitate the workout and are funding advertising to educate borrowers about foreclosure prevention options. 

They are paying for housing counseling so that they remain free to the homeowners and are working with regulators and others to resolve legal impediments to loss mitigation. 

All these efforts demonstrate the industry’s dedication to avoiding foreclosure and help delinquent borrowers get back on their feet.  The industry is working to keep pace with changes and seeking new and financially responsible ways to increase workouts.

The incentives of the mortgage servicer are generally in line with the family who is in trouble.  Thank you for the opportunity to share our thoughts with the Committee.”

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.