Start-Ups Target Risky Loans

Subprime mortgage originators have been folding their tents right and left, but some industry veterans are entering the fray with new firms - servicing companies designed to help investors maximize recovery or rehabilitation of distressed loans.

Strategic Recovery Group, a national mortgage asset recovery company, is launching a special servicing unit to meet the growing needs of lenders and investors in distressed debt.

The servicing unit, to be known as Acqura Loan Services, will be based in Strategic Recovery Group's headquarters in Plano, Texas.

David Vida, CEO of both Acqura and Strategic Recovery Group, told MSN that investors and issuers are looking for innovative partners who can commit to the high levels of service and asset management to create better outcomes for borrowers and investors.

Acqura began hiring staff and developing proprietary scoring and servicing technology in the middle of last year, anticipating the boom in demand for special servicing. The company already has three special servicing clients. Acqura provides a full spectrum of servicing, loss mitigation and collection services to hedge funds, investment banks and lenders with a customized risk-management approach for each client.

The company calls its proprietary borrower risk-modeling tool BRF, for Borrower Risk Factors. BRF is used to score loans as they are boarded onto the servicing platform. The company says the scoring system will help predict the level of loss mitigation that is appropriate for the loan. The entire population of loans can be rescored nightly, the company said. And Acqura said it is in the process of developing new, more sophisticated scoring technology.

"Typically, loss mitigation begins when something bad happens," Mr. Vida said. "Our approach will allow us to be more proactive in anticipating events, such as resets or deteriorating credit, and to establish a profile and, hopefully, a dialogue with the borrower before the situation escalates."

He said that SRG pitched the idea of a new servicer to a hedge fund back in 2004, but there wasn't much interest in special servicing at that time. With the subprime mortgage meltdown, however, that has changed. Last year, SRG raised capital to rebuild its servicing capacity.

"Now, participants in the cleanup need a more customized, special servicer approach rather than standard, big-box servicing," Mr. Vida said.

He said Acqura's technology helps it begin loss mitigation conversations with borrowers before they really become candidates for loss mitigation by analyzing rate reset and home price trend data. The company's predictive consumer behavior technology allows the company to get ahead of the curve rather than waiting for a serious delinquency before taking action.

Mr. Vida says the company's pre-emptive technology will give it an advantage in the mortgage servicing marketplace. He also noted that Acqura won't be saddled with a "huge backlog" of problem loans and a servicing fee structure that does not properly incent the best recovery efforts. By starting anew, Acqura won't have the "legacy issues" that may hinder loan workouts and recovery at some lenders, he believes.

SRG, which has a strong focus on second mortgages, hopes to reach $1 billion in volume this year.

SRG isn't the only firm that has decided to open a new servicing shop focused on serving investors in troubled loans.

When Stanford Kurland, the former president of Countrywide, decided to get into the business of buying and resolving troubled mortgage loans, he and his team of colleagues looked into buying an existing loan servicing platform.

But Private National Mortgage Acceptance Corp. (nicknamed PennyMac) also decided it was best, under the circumstances, to start from scratch.

"We looked at a variety of servicing platforms, and for a series of reasons, we thought it would be best to have our own from scratch," Mr. Kurland told MSN.

Building a new platform allows the company to create the flexibility that will be needed to modify and adjust loans, which PennyMac hopes will return them to performing status.

PennyMac plans to buy whole loans from banks, thrifts, credit unions, Wall Street firms and other sources, rather than aiming at troubled mortgage-backed securities. The focus on whole loans also avoids the strictures that are associated with MBS pooling and servicing agreements, he noted.

He said joint venture partners BlackRock and Highfields Capital Partners bring more than just a financial investment to PennyMac.

"BlackRock plays a significant role in terms of assisting with certain mortgage analytics that they make available to us," Mr. Kurland said.

Mr. Kurland said the company plans to start boarding loans onto its system in May. He believes that the opportunity to buy and rehabilitate troubled mortgage loans will only last for three or four years, making a quick start imperative.

But during that window of opportunity, he said the opportunities are likely to be "enormous" due to the continuing housing downturn.

"Personally, I think that we haven't quite bottomed at this point. I do think that we're seeing in the last several quarters some very significant price adjustments in terms of housing. Clearly we are a lot closer to the bottom than we had been," Mr. Kurland said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

Next in News ►