In a White Paper directed to the states Attorneys General, the Association of Mortgage Investors (AMI) which represents private investors, public and private pension funds and endowments, puts forth a broad indictment of the mortgage servicing industry and offers its solutions to the foreclosure crisis.

All 50 of the Attorneys General are engaged in an investigation of the mortgage process and are expected to design a multi-state settlement in the next few months.  AIM, in a press release accompanying the White Paper said, "It is the greatest hope of mortgage investors that any settlement carefully considers the impact on the performance of state pension, retirement systems, life insurance, and medical savings plans and ensure that the responsible parties bear the expense of past bad acts.  Furthermore, mortgage investors believe the only way to truly put distressed borrowers on a sustainable path forward is by including the borrower's entire debt load in the modification or workout program."

AMI says that 90 percent of the money invested in mortgage-backed securities (MBS) is public money, invested on behalf of state pension funds, retirement systems, university and charitable endowments and that these investors have suffered material losses through faulty, inefficient, and sometimes improper servicing of the mortgage loans.  Borrowers have also suffered in their interactions with servicing which AMI states has dumped excessive fees on them, delayed resolutions of problems, and created longer term housing and mortgage problems.

The Paper, The Future of the Housing Market for Consumers after the Crisis:  Remedies to Restore and Stabilize American's Mortgage and Housing Markets, outlines AMI's solutions to the foreclosure crisis broken down into two components:  Better Execution, and Sustainable Solutions.

In the first component AMI states that resolving the current crisis requires intermediaries to interact with consumers and distressed borrowers in a fair and productive manner.  To that end, servicers should staff their collections operations so that employees should not be handling a caseload of no more than 100 to 150 120-delinquent loans and that those borrowers each have a single point of contact.  It also recommends the use of special servicers who can offer enhanced counseling to find a "right-sized" modification.  There also needs to be an independent entity to resolve other consumer debt issues where credit card and auto loan holders are not willing participate.

Loss mitigation and foreclosure should be transparent and open to the homeowner.  The servicers have an obligation to educate the homeowner as to the process of foreclosure and available alternatives and underlying mortgage and foreclosure data such as servicing fees, foreclosure expenses, and the asset loss breakdown must be disclosed.  Costs due to servicer error should not be reimbursed by the RMBS trust and borrowers must be protected from "egregious fees" when they fall behind on mortgage payments.  The process must be equally transparent to investors who do not have access to the most basic information about the mortgages such as the loan files.

Homeowners need sustainable solutions that put them on a clear path to affording their debts in order not to prolong the recovery of the housing markets.  AMI said that investors support sustainable modifications and suggests an option to re-establish payment under a 31 percent front-end debt-to-income ratio; a refinance at 97.75 LTV into the FHA Short Refinance Program, or a reduction of all junior liens at a minimum of a proportional write-down.  Most important, however, the paper says is that all consumer debt should be restructured as part of the modification.  A sustainable mortgage will have a combined loan-to-value of not more than 115 percent and a back-end ratio of 50 percent of less.  Without resolving consumer debt, it is inevitable that modifications will not succeed.  A mechanism such as bankruptcy or binding arbitration is necessary to compel other consumer debt holders to participate in debt reduction which they have not been willing to do. 

Where a sustainable modification does not work, the servicer and/or loan counselor should work with the borrower to efficiently avoid foreclosure through a short sale or deed-in-lieu.  If there is a second lien there needs to be a mechanism to bypass that lenders approval in order to avoid foreclosure.