The Investor, Homeowner Confidence Challenge
Global economic hardship, topped by the scare of a prolonged U.S. economic crisis, has highlighted another risk - damaged confidence. The psyche of investors and borrowers is equally important to establishing timely servicer-borrower-lender-investor communication.
The "wild" hand of cards dealt to the mortgage industry right now includes unemployment, a prolonged recession and the need to recreate buyer confidence, says Prakash Kondepundi, president and CEO of DepotPoint Inc., Bellevue, Wash. He means investors, even though homebuyers, also are quite timid now.
"Buyer's psyche is damaged, if not destroyed, so many more people are going to stay in the sidelines and not get back into the housing market. I call all these parameters wild cards because they all have to come together for the market to pick up. I'm an optimist and I think it will happen. This is an opportunity as much as a wakeup call." DepotPoint is a technology firm that helps automate and streamline processes and lower cost in managing defaults, foreclosures, REOs, short sales and loss mitigation in general. The goal is to reduce mortgage costs for the borrower and still leave good margins for investors so they continue to believe in the mortgage securities' market.
"If you tie up loans without a chance for a second review or strategic plan, you could potentially end up with a systemic risk that can destabilize all financial systems, which is what everyone is trying to avoid, and also is the reason why there has to be a controlled flush of the so-called toxic assets based on the wisdom that underlines the process in normal market conditions."
Transparency in information, he says, starts with the homeowner at the borrower level. If lenders and servicers provide simplified information to a homeowner the whole loan modification, even the overall loss mitigation process, becomes clear. At the same it improves borrower confidence in their mortgage provider.
Technology can help make homeowner education less expensive. It also helps make the process more transparent and less expensive for the multiple parties that are using it - including investors. "Talking to homeowners on the phone is expensive, so it is important to bring everybody on the same page," he said. "This way you can bring transparency to the homeowner, investors and compliance parties, in addition to accountability and intelligence." Right now that is the focus of technology providers responding to challenges in contacting homeowners and improving data reporting.
Data continue to show the psychological pressure is on. For example, industry data such as the Real Estate Roundtable Sentiment quarterly index show commercial real estate executives are as concerned as their residential real estate peers.
The good news is that going forward survey participants anticipate a slight market improvement from 2Q 2009 (see following story from James Comtois), yet Real Estate Roundtable president and CEO Jeffrey DeBoer warned that if the market weakens further it can get worse before it gets better. In mid-January, he noted, "While some of our members are more 'optimistic' that the right combination of policy actions can begin to unlock markets and get money flowing again - possibly as early as the second half of this year - right now even sound businesses are in survival mode. For many, just 'staying alive' in 2009 will be a great accomplishment."
If this year predictions of Mr. Kondepundi's peers on the commercial mortgage side of the market continue to improve quarter-to-quarter, one can optimistically see it as a sign of the beginning of return to normalcy.