Servicers Need be Proactive With ARM Resets
As servicers get ready and start to deal with adjustable-rate mortgage payment resets, the multifaceted national effort to save homeowners in distress is an endeavor that requires proactive intervention and sometimes, unpopular cathartic measures.
Right now, the industry needs to face its inability to be proactive, said Terry Couto, a partner in the Tampa, Fla., office of Newbold Advisors, at SourceMedia's Mortgage Servicing Conference here.
"One of the biggest problems servicers have today is managing the surge of delinquent loans. They are finding it difficult to efficiently hire, train and manage all the additional people it takes to handle incoming phone calls. That makes it even more difficult to be proactive, especially in making outbound calls and contacting borrowers to discuss alternatives before their ARM loans reset."
Fast and timely decision-making is another challenge. Servicers have "only a small window of time in which most loans can be saved," he explained, once a loan becomes 90 to 120 days delinquent, it is often too late to develop a workout. The 22-year industry veteran believes results improve when servicers "spend more time analyzing their portfolio and developing strategies" based on solutions that meet the respective investor guidelines.
"This would allow them to focus on salvageable loans and minimize time spent on loans that have little chance of survival," Mr. Couto said.
"Few would argue that a big part of our problem is that we made loans to people who can't afford the payments. So it doesn't make sense to me that most of the proposed solutions are focused on saving the loans. The fact is some of the loans should and will fail," he argued. "Of course, keeping people in their homes is a great thing to do because it helps the homeowners, the communities and investors. But that only works if the homeowner has the desire and ability to make their mortgage payment."
Furthermore he believes borrowers who do not have the ability or desire to make their mortgage payments, should be evicted as soon as possible.
"Extending the problem for those delinquent borrowers only exacerbates the problem for everyone."
Working proactively with borrowers in today's marketplace is a dire process of evaluating what borrowers can and what they cannot afford, and finding what options - whether it is refinancing, loan modification or foreclosure - also make sense for lenders and servicers. The ARM reset waves approaching the market as products mature, plus the wide variety of customer profiles make these ARM loans high risk.
Another panelist, Curtis Rethwisch, director of loan servicing at Wilshire Credit Corp./Merrill Lynch, also stressed a proactive ARM strategy. Talking about his company's approach to managing the considerable risk its high concentration of ARM poses on the performance of wholly owned and securitized assets, Mr. Rethwisch noted, "The ARM population has higher-than-average delinquency pre-reset, demonstrating that the ARM reset is not the primary driver of defaults in this borrower base."
Wilshire Credit Corp.'s ARM strategy included contacting consumers using direct mail 150 days prior to the first reset, also 45 and 90 days prior to first resets and on multiple resets. From 60 to 120 days prior to reset, call campaigns also include educational calls that aim to help borrowers and determine current ability to service the debt, loss mitigation options on early referrals through a borrower hotline and based on borrower intent, and using property risk score models and special teams dedicated to loan modifications that utilize enhanced loan workout modification criteria including pre-approved loan modifications. Company strategy also includes representation at borrower outreach programs in cooperation with state and local government agencies, as well as consumer groups.
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