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 has put a spotlight on the industry's shortcomings.
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 found significant compliance among servicers while others have not met obligations of borrowers or taxpayers, he said.
"There's a reflection in the media and a reflection in the industry that we aren't being held accountable enough," Stevens said at the MBA's meeting.
Errors in foreclosure proceedings, 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.
In addition, some bankers have simply refused to participate in government efforts designed to help borrowers and shore up the fragile housing market, such as the FHA program to refinance borrowers who are underwater on their mortgage, he said.
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 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 main lobbying group for the mortgage banking industry with 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."
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