Servicers Wonder How Long Foreclosures Can Be Delayed
The ever-increasing delinquency-to-foreclosure timeline and the question of whether loan modifications really work, as well as the inevitability of a delayed next-wave of foreclosures were among themes under discussion at the Mortgage Bankers Association's National Mortgage Servicing Conference in San Diego last week.
At the conference National Mortgage News convened a roundtable of servicing executives at the show to share their thoughts on these topics and more.
The participants generally sounded concerned about the current situation, especially given the rules the federal government, as well as many state governments, are imposing. While there has been talk of recovery in the market at large, executives that took part in the roundtable indicated they fear a continuing downward spiral from negative equity situations.
Participating were Cary Sternberg, president of Excellon REO, a division of Titanium Holdings; Scott Goldstein, president of National Default Exchange Index; Richard Powers, senior vice president of real estate services for Altisource Portfolio Solutions; Ron Deutsch with Cohn, Goldberg and Deutsch; and Jim Satterwhite, EVP with Infusion Technologies.
STERNBERG: Titanium Solutions, our sister company, has been very involved with in-home outreach for HAMP, also doing a lot of short sales, getting involved with the new HAFA and I'm the guy they're trying to put out of business and keeping the people in their homes, and hopefully, before it gets to REO, they can do something. From my standpoint, at the conference, I'm interested to see if anybody's got opinions on what else they can come up with to delay this foreclosure pipeline that has been building up for several years now. And I'm not being critical of the administration or the programs that they're trying to do, but I think if we look at what's happened, haven't we already gone and modified loans for people that could qualify, or that even wanted to? How much longer can we postpone the inevitable? And if anybody's got any insight, that's one of the things I was looking forward to here in the meeting. If anybody's got any good knowledge about that, I'd love to hear it.
GOLDSTEIN: We do mortgage default processing for law firms in eight states ... and we probably service the process files in 75% of a servicer's portfolio, if they looked at it. And I agree with Cary, I think in the next year, the trend we're going to be seeing is the term is going to be shadow inventory. And you're hearing it a lot. It has different meanings all throughout the process. And now, you're seeing just a long hose, with people stepping on it along the way from a shadow inventory started when they were first talking about the REO homes that hadn't been put for sale yet. And then, they started talking about the shadow inventory of files that were delinquent, but not put into foreclosure yet. And now you're seeing the shadow inventory that concerns me.
There was an article last week where notice of default to sale in California used to be 146 days, now it's 230 days. So really ... this is kind of an inventory problem, where ... files are just sitting at different stages, so it's a long hose that's being stepped on all along the way. And to address your question directly, how it's going to shake out is there would be nothing that would surprise me going forward anymore. I sit and I say, half sarcastically, if we ended up with a national mortgage holiday, where they gave everyone two or three months of mortgage-free months, it wouldn't shock me. And we were headed there because they're trying to extend this process any way possible to stop all the different shadow inventories from actually coming through. But it does create a problem because the files build up for the servicers, and it's hard to handle that many files.
And that excuse for servicers, that we're not staffed up enough, ended two years ago. You just can't say that anymore. But the truth is, with these files just sitting and not being able to flush through the process and new ones coming in and not many going out, that is an issue.
POWERS: I'd like to make a comment, if I could. And Cary, your question is an excellent question. It's one of those where the question is much easier than the solution. And I think if you step back through the whole issue of modifications, before there was ever HAMP, modifications in general have had just a horrendous track record ... right?
POWERS: I mean they kind of just defer the problem, they never really solve it. And so that's just the history ... of modifications. Now, we're full blown into doing modifications. It does sort of stem the flow a little bit, but it doesn't do anything at the end of the line. And for me, the biggest thing is what you do about the negative equity? So the long pipe, the hose that you're talking about, that's the stuff that's already in some degree of distress. There's another subset that's unknown, the folks that are still paying that have significant negative equity that are going to be coming into part of that shadow inventory that we haven't even seen yet because ... at some point they go, you know what? You've got declining rents. You've started looking at "What's my economically rational decision to make? I walk away from the home and get as nice a home and I'm spending 20%, 30%, 40% less than I am on my housing payment today." So all those are part of the problem, now.