US mortgage industry should develop new policies for distressed borrowers: Report

By Ovunc Kutlu

ISTANBUL (AA) - The mortgage industry in the US should develop new intervention policies for distressed borrowers, according to a report released Tuesday.

Events such as the 2008 global financial crisis and the coronavirus pandemic caused high levels of stress in the US housing market, leading to rising mortgage delinquencies, said the Mortgage Bankers Association (MBA).

Examining current mortgage design models and underwriting standards, in addition to intervention policies, would help alleviate market pressures resulting from high levels of mortgage defaults, it added.

"The mortgage industry has faced numerous challenges that have caused mass upheaval in the housing market, and in many cases, the industry was ill-prepared to handle the significant influx of mortgage defaults and subsequent foreclosures," Joseph Tracy, a distinguished fellow at Purdue University and former senior Federal Reserve advisor, said in a statement released by the MBA.

"The industry must continue to evolve with the changing dynamics of its customers and their needs. By examining current mortgage design and underwriting standards, the industry will be better equipped to assist distressed borrowers facing hardships," he added.

Key findings of the report said the aim when intervening with a distressed borrower is not to limit foreclosures or to maximize the success of the intervention but rather to minimize the loan’s expected loss.

There are two key strategies for helping distressed borrowers -- mitigate any cash-flow constraints and deleverage the borrower -- according to the report.