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Subject: Working with Borrowers
Date: October 11, 2007
To: Chief Executive Officers of All National Banks, Federal Branches and Agencies, Department and Division Heads, and All Examining Personnel
Description: Statement on Residential Real Estate Loan Restructurings for Serviced Loans
The guidance attached to this bulletin continues to apply to federal savings associations.
On September 4, 2007, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the Conference of State Bank Supervisors issued the attached Statement on Loss Mitigation Strategies for Servicers of Residential Mortgages (statement). The statement encourages federally regulated financial institutions and state-supervised entities that service securitized residential mortgages to review and make full use of their authority under pooling and servicing agreements to identify borrowers at risk of default and pursue appropriate loss mitigation strategies designed to preserve homeownership.
Significant numbers of hybrid adjustable-rate mortgages will reset throughout the remainder of this year and next. Many subprime and other mortgage loans have been transferred into securitization trusts that are governed by pooling and servicing agreements. These agreements may allow servicers to 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. Servicers may have the flexibility to contact borrowers in advance of loan resets.
Appropriate loss mitigation strategies may include, for example, loan modifications, conversion of an adjustable rate mortgage into a fixed rate, deferral of payments, or extending amortization. In addition, institutions should consider referring appropriate borrowers to qualified homeownership counseling services that may be able to work with all parties to avoid unnecessary foreclosures.
For further information, contact Susan Eckert, Director for Retail Credit Risk at (202) 874-5170, or Michael S. Bylsma, Director for Community and Consumer Law at (202) 874-5750.
Emory W. Rushton