Editorial: A New Focus on REO

The new year is full of mixed blessings for mortgage servicing executives. Rates have remained reasonably stable, but refinancing activity is higher than many had expected. Delinquencies are creeping up, but not so far and so fast as some had feared.

It's that latter point that needs further attention from the industry. After years of relatively calm sailing in the default management arena, will 2007 be the year when increasing home borrower leverage, innovations in mortgage underwriting and sluggish housing markets conspire to drive up delinquency and default rates. We hope not, but we aren't ready to bet that the good times will last another year either. And we're ready to beef up our default management coverage as a result.

In December, the Mortgage Bankers Association reported that the overall home loan delinquency rate edged up to 4.67% in the third quarter of 2006. Foreclosures also inched up, but at a moderate pace. While that news isn't alarming in and of itself, the data shows that some slices of the mortgage industry are showing signs of a potential meltdown in credit quality. The subprime delinquency rate climbed 86 basis points to 12.56% in the third quarter. And 12.80% of FHA-backed loans were past due. Adjustable-rate home loans accounted for a big chunk of the increase.

In short, as lenders have reached further down the credit spectrum to expand homeownership, they've added riskier borrowers to the homeownership mix. That's part of the trade off in expanding the nation's homeownership rate and stretching the affordability range to serve as many homebuyers as possible. But it comes at a price.

We hope the industry remains vigilant in managing delinquencies, defaults and foreclosures. This month, MSN is unveiling a new section, REO Management, that runs in tandem with our parent company's online journal of the same name. In this section, we'll feature both original coverage and stories from the online version that explore trends, challenges and issues that affect the asset management and asset disposition side of the business. It will add more depth to our default servicing coverage and augment our coverage of performing loan servicing as well. Don't hesitate to contact MSN's editors if you have a suggestion, idea or story pitch that might be appropriate for REO managers to hear about. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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