MBA Forecasts 1.8M Foreclosures in 2008

The mortgage industry is facing the prospect of 1.8 million foreclosures this year, up from 1.5 million in 2007, according to a prediction by the Mortgage Bankers Association's chief economist. That means a higher transition rate into REO.

Doug Duncan, who will soon join Fannie Mae as its chief economist, made the prediction during a panel discussion at the MBA National Mortgage Servicing Conference in New Orleans. The panel agreed that foreclosures are not just a subprime problem, but a broader economic problem affecting different regions, especially the Midwest and previously overheated markets.

Amy Crews Cutts, deputy chief economist at Freddie Mac, said delinquencies and foreclosures are also rising in prime loans. Ms. Cutts said it will take time, perhaps until the third quarter, before home prices stop falling. "The recession risk is higher," she said. "And unemployment is creeping up on us."

Alternative-A and negative-amortization loans were also cited as possible causes for concern when they reset in 2010.

Panelists compared today's market troubles to that of the Great Depression. A large majority of borrowers owe more than their home is worth, said David J. Kogut, director of mortgage market analysis at Fannie Mae. He said there is a huge supply problem in Arizona, Nevada, California and Florida, as well as in Ohio, Michigan and Indiana, where these markets have seen significant job loss.

Success is being moderated by the amount of loss mitigation that is being conducted, the panelists said. There is still a lot to be done, and the added costs in servicing shops are being felt by all aspects of the company.

The overall market could see a U-shaped fix, said Ms. Cutts, who added everyone is hoping for stability. Some regions are seeing a modest supply and construction pick up. But most likely, it will take a long slow, lumbering recovery.

In order to deal with the declining marketplace, lenders are using technology more than ever before. Companies are writing new features and enhancing components of their current solutions to help deal with the default tsunami, says Ron Morgan, managing director at ISGN. ISGN's MortgageHub Inc., in partnership with USFN, has launched the Home Retention Alliance to provide home retention and loss mitigation services that offers borrowers and lenders alternatives to foreclosure.

"We look at the demographics in each marketplace and help the borrowers through the entire cycle of the loan."

The alliance sends out letters with the help of attorneys. "Borrowers will read it. They will open it," said Mr. Morgan. "We must look at non-conventional ways to save loans and preserve the asset value. No borrower wants to talk to the lender. They need a respectful ear. We talk with them about the steps it takes for the loan to be modified. In today's market, we must harness technology to empower the solution."

Servicers are doing more with technology to help borrowers qualify for loan modifications. They are using innovative approaches to reach out to borrowers and partnering up with different agencies to contact homeowners. Websites are allowing borrowers to submit financial information from a loss-mit standpoint, and servicers are conducting face-to-face door knocks and interviews, said William Fricke, vice president, senior credit officer, Moody's Investors Service.

"Servicers are going out into the community, setting up a place where the borrower can go for help. They have staff in place and credit counseling," Mr. Fricke said. "Servicers are investing in these incentives. There is a quest for servicers to do more work and provide more information."

There is a growing concern over the servicers' ability to hire qualified staff and to retain them or to outsource work. Moody's is seeing servicers take a proactive approach to prioritize calls for high-risk borrowers. Most are using risk scoring models and "best time to call software," he said. Is the lender reaching out to borrowers several months ahead of a reset problem?

If the servicer can't save the borrower from foreclosure, the next problem is making sure these REO properties are maintained.

The market has a critical need for a way to monitor the growing number of unoccupied pre-sale and REO properties, which are highly exposed to vandalism and damages due to loss of power, sump pumps, theft, high humidity and fire. Even a broken window can lead to extensive water damage in many areas. "Lots of things can happen to vacant properties," said Rich Rollins, chief executive officer of REO Sentinel of Jacksonville, Fla. "And most of them are expensive."

REO Sentinel has unveiled a new technology that offers an inexpensive but high-value solution to combat this problem.

The patent-pending remote wireless devise can detect many types of gasses, the presence of smoke and high humidity conditions, and even takes a photo of everyone entering the property, he said.

It is completely autonomous and self-powered, and even performs daily "heartbeat tests" to ensure working order. Lenders and property preservation managers have total visibility into all events at a portfolio level, or they can drill down to an individual property for a more granular view. A Web-based dashboard is available, showing the status of each property and any alerts that have occurred over a user-configurable timeframe.

"It is built for harsh conditions," said Mr. Rollins, who created the device in collaboration with input from leading loan servicers. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/