Are Servicers Wearing Too Many Hats?

These days the mortgage marketplace, especially the servicing arena, is continually bombarded with loss mitigation options that entail new legislation, counseling, data analytics systems, technology, and other tools designed to ease the crisis. Related issues within the servicing space are subject to debate and grounds for differing opinions. Insiders’ pros and cons reflect how servicing experts see the future of their industry, how soon they expect to detect the light at the end of the tunnel.

In this issue we inquire how are servicers dealing with mounting regulatory pressure since now they are required by law to engage in many largely untraditional activities for this market segment. Today's servicers need wear many hats to survive. For example, recent regulatory changes are pressing lender-servicers of investment loans on multifamily unit properties at risk of or facing foreclosure to offer property management assistance, which includes overseeing tenants. Before these renters actually leave, accept a cash-for-keys option or wait for a solution, their tenant rights need be respected. To servicers in that situation it all turns into a matter of how fast and how well they can learn the do-s and don'ts of being a landlord, or outsource. As new federal policies come up with best ways to protect everyone's interests the list of such burdens keeps piling up on servicers. Some would argue that it could turn into a situation where certain responsibilities eventually turn into the straw that breaks the camel's back. How much is too much for servicers to handle? Is the Obama Administration keeping it real?

Is it a good idea or a bad idea to add such servicer responsibilities, and why? Ron Morgan CEO of Sterling Home Retention Pro-Con:

Probably is a good thing for the tenant and the GSEs, Fannie or Freddie because they are allowing tenants now to stay in the property and make a negotiated lease payment, which keeps somebody in there, keeps the utility paid, keeps the property maintained and kind of saves it from vandalism.

Today servicers, especially top servicers have several big challenges. One being to receive the calls they are bombarded with. They don't have the capacity on their phone systems, the resources to retract the information they need for Fannie and Freddie to determine what new reduced payment program these borrowers can be put in and finally, technology. They don't have the technology platforms they need. What they need is end-to-end technology solutions that allow them to handle two-to-three times the normal capacity in volume, so they also have to add staff. Companies like ours that specialize in home retention add as the addition to the staff of top lenders contact borrowers for workouts. We get the information and submit that top Fannie and Freddie for approval....And than you have to track what the failure rate is on that new plan.

This is where the market is now. So in the cases when lender-servicers are dealing with the loss mitigation options for multifamily properties I think it is fair for them to wear the landlord hat. The reason I say so is because it is a way to continue cash flow in the asset, which means they don't have to put a one-to-four unit into foreclosure. Obviously a foreclosure means more losses to Fannie and Freddie. It means more of our tax-payer's dollars is used to support selling the property, which generally is at 50% of the current value of that property, or the current balance on the loan. So I think for us as taxpayers it's a good thing.

Can they be good landlords? They'll have to outsource and partner with some of the people who are experts in that business channel. In Dallas for example, Fannie Mae deals with most of those operations, but also partner with experts in rent payment, payrolls and maintenance of four-family units. In the end I think it is best fro all Americans to have those properties out of the foreclosure inventory.

I really think this is a good thing. If you keep the loans from going into foreclosure, you can keep the income stream, which benefits the servicers and also mortgage insurers who are pretty stretched in their balance sheets these days. I'm sure there's another side to it, but I think it's mostly a good thing. Steve Horne, CEO of Wingspan Portfolio Advisors Pro-Con:

Servicers are increasingly functioning more as general contractors coordinating the ever-increasing disparate functions required by investors, regulators and other interested parties. The challenge is both finding the specialist able to deliver the services in question and coordinating their services into the overall servicing function. But many servicing systems are simply not designed to function as air traffic control systems for so many parallel and simultaneous efforts. As such, few servicers have the ability or resources to step up to this challenge to meet all the regulations and requirements demanded in the current marketplace."

"The requirements are making it tough on servicers since they don't necessarily reflect how servicers are accustomed to doing business, nor how their servicing systems operate. The good news is that companies like mine are providing servicers the assistance they need to fulfill their obligations."

"It is a good idea for the government, the industry, and our stakeholders to reconsider what it means to be a servicer. Traditional methods and strategies are clearly insufficient to meet the challenges facing the industry today. New thinking, new technology, and new strategies are the drivers that will move our industry onto a better path."