Editorial: Headline Risk

If there was an overarching theme at this year's MBA Mortgage Servicing Conference it was the fear of "headline risk."

Nobody needs to be reminded how dangerous bad news about aggressive collections and foreclosure practices can be. Just think about what happened to Fairbanks Capital, once among the industry's highest-rated subprime servicers. The brand became so reviled that the company's owners abandoned the name.

And these days, the mainstream media is focusing a spotlight on every indication that defaults and foreclosure activity are on the rise. Add into the mix the debate about the "suitability" of nontraditional mortgage products for some borrowers and you have a combustible environment. Sooner or later, most servicers are probably going to have cases where a bad set of facts, such as a compelling hard-luck story, turns a routine foreclosure proceeding into a potential media circus.

In that context, it was interesting to listen to servicing executives during a "default super session" at the conference. Many say they are willing to take steps that once would have been largely outside the purview of a servicing shop to mitigate headline risk.

"We'll do a lot of creative things to make problems go away. We've given up houses," said Stephen Staid, senior vice president of default at Litton Loan Servicing. As the discussion progressed, it became clear that Litton is not alone in taking headline risk very seriously in today's economic environment. Senior executives at most servicing shops seem committed to doing more by way of loss mitigation than in the past, with a clear goal of keeping more people in their homes.

But not everyone thinks the workers on the front line are getting the message. Laurie Anne Maggiano, acting director of HUD's office of single-family asset management, said lenders need to do a better job of making sure the theme of keeping more borrowers in their homes "trickles down" from senior management, so that loss mitigation managers feel empowered to do some creative deal making with troubled borrowers.

One way some lenders are doing this is by working with credit counseling agencies, whose employees may have a better working relationship with delinquent or defaulted borrowers than a lender's own staff. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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