Ways the Crisis Is Changing Servicers

Insiders monitoring the current crisis say it has changed the way all parts of the mortgage chain relate to each other.

Market veteran Steven Horne, founder and president of Wingspan Portfolio Advisors LLC, Carrollton, Texas, says it is still in the middle of working through the crisis and preparing to face the upcoming challenges in the nonperforming side.

He has seen the industry change over the years. Right now, he does not agree with those forecasters who expect or simply express hopeful thoughts that look forward to significant positive changes by midyear 2010. "I don't think it'll all be finished by then but I think we'll have made substantial progress by then as we'll continue to see an accelerating volume of loan sales, nonperforming loans offered to the market. As expected, these assets continue to migrate within the quality spectrum, and that is a big part of the solution."

He expects to see further challenges in the nonperforming side.

The next six months will be about figuring out what to do about the loans that are in securitizations. "And I think that that will be a very productive use of everyone's time to figure out what the right answer to that is," he said, as solutions that can be in everyone's interest can be applied to securitize the loans.

Purchasers of these nonperforming loans are a necessary part of the recovery process, he added, because it puts the incentives in the hands of "people who have the patience to be as generous as necessary and pay as much attention to the loan as it is required, which is to maximize their value and thereby help a maximum number of borrowers."

The biggest effect of the crisis is that it is changing the industry's mentality.

"The servicing industry has been adopting solutions from other parts of the mortgage industry," he said. "For instance, the use of special servicers and the use of receivers comes straight out of the commercial world. Similarly the use of specialized collections, recovery and loan resolution resources come straight out of the unsecured recovery world."

Mr. Horne, whose background includes years of experience in collections, sees wisdom in what could be called a collection agency mentality where people specialize in particular types of paper and delinquency buckets.

"There are probably 2,000 to 3,000 collection agencies across the country, and not a single one of them that would ever tell you that they are the best at every kind of customer paper at every stage of delinquency. No one thinks that way."

Yet, he said, even though now it is breaking down, the mortgage industry "has clung rather strongly to the conviction that every servicer should be able to service every loan at every stage of delinquency."

And that is neither true nor doable, much more so in today's market where programs like TARP and HAMP come into play with yet another set of compliance requirements for servicers.

According to Mr. Horne special servicers represent an ideal solution to addressing Treasury's concerns with, thus far, limited results from the HAMP program that can mitigate capacity issues.