Editorial: Ignorance Is Not Bliss

Servicers are facing a vortex of woes these days. Poorly underwritten loans are heading toward default, public sympathy is on the side of borrowers, and too few of them know what servicers can do to help them avoid foreclosure. Most defaulted borrowers go to foreclosure without ever responding to their servicers outreach efforts. Yet they still blame the lender for their problems. Adding to the misery: plaintiff's attorneys and consumer advocates are zeroing in on lenders, both with litigation and legislative proposals that could prove burdensome to the industry. Most recently, several large servicers have been targeted by cities that claim their lending practices have driven up foreclosures in urban areas, creating a "public nuisance."

Over and over, we hear that fewer than half of borrowers who go to foreclosure ever respond to their lender's efforts to reach them. This is a problem the industry is addressing on multiple fronts, as servicers come under increasing pressure to proactively pursue workout strategies that are designed to keep borrowers in their homes. All too often, when you tune into a television news segment about the "subprime crisis," you will hear broadcast journalists and the experts they interview criticize the lending industry not only for lax underwriting standards, but also for allegedly aggressive foreclosure actions.

The dual challenges of managing rising default workloads while responding to public advocacy for home retention will remain with the industry for some time to come. By all accounts, home prices are continuing to slip, despite the Fed's recent easing of interest rates. That may help take the sting out of some payment resets on adjustable-rate mortgages, but it isn't going to help people who simply cannot afford their home loan. With the economy teetering on the brink of recession and job losses continuing to mount, it is unlikely that default rates will edge down in the near future. As a result, servicers will have to navigate through choppy waters for some time to come. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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