'Special' Demand Up

Tampa, FL-Special servicers are scrambling to develop new staff capable of fulfilling the current high demand for loss mitigation expertise.

Special servicing products and technology solutions also are helping balance out the shortage of default management experts created by the unprecedented recent need for mortgage workouts.

"All those with experience in default management are taken," Houman Talebzadeh of Ernst & Young, a consulting firm specializing in the assessment, design and restructuring of servicing firms, told MSN.

Linda Simmons, general manager of mortgage finance solutions at Overture Technologies, Bethesda, Md., predicts high demand for special servicing is here to stay for at least five years into the future.

Mr. Talebzadeh agrees. Lenders, serivcers and special servicers are now facing loan processing capacity issues combined with specialized staff retention, recruiting and training problems. Data showing continuous growth in defaults and feedback from servicers attending the recent MBA National Servicing conference here, he said, indicate that while "everyone is dealing with default management capacity differently, mortgage default expertise still is very high in demand."

So much so that many servicers are trying to adequately retrain auto industry debt collectors so they can learn the specifics of mortgage loan workouts.

Servicers do not have in place support functions that ensure quality workouts, Mr. Talebzadeh said, they have to figure out who can convert into a quality workout producer, or consider third-party servicing and off-shoring as the next solution to their capacity challenges. "Loan officers can produce best results since they are familiar with mortgages."

He believes, however, that the Obama administration's new Homeowner Affordability and Stability Plan will generate a new wave of refinancing that may create a disincentive for loan officers about to enter the default management arena.

In fact, supporters like Conrad Egan, president and CEO of the National Housing Conference, believe the Obama plan will help millions of responsible homeowners affected by the ongoing foreclosure crisis "by offering incentives to servicers to lower monthly mortgage payments to a level that homeowners can afford, and allowing others who owe more than their house is worth the ability to refinance."

If a loan officer may not be the best default management staff substitute, Mr. Talebzadeh finds they still are easier to train and employ as call center representatives. "It certainly is a challenge to retrain auto industry collectors, for instance, since they do not know anything about loan modifications," he said.

Ms. Simmons would not agree that loan officers could turn into efficient default management officers. She believes the commission-based mentality of loan officers is at least in part responsible for the current crisis.

She agrees, however, that a shortage of qualified default management and loan modification is an issue for the industry right now. Turning loan officers into default management servicers is a tough universal transition, she said, "but it is doable." Currently the national discourse focuses on defaults. "We tend to forget that at least 90% of the borrowers pay on time," which shows there certainly are many good loan officers out there.

According to Ms. Simmons, beyond staff recruitment and training, servicers can be effective in their loan modification efforts only if they use consistent technology.

"There is a quite short window of opportunity when the servicer calls a defaulted borrower," Mr. Talebzadeh said. "The workout process is a very time-sensitive issue that requires quality data and speed. The goal is to communicate with the borrower while using technology that helps find workouts that work within the timeframe of that one call."

More specifically, decision drivers start with borrower intentions to stay or not stay in the house, decide whether a short sale, or so-called gracious exit works best, or predict one's ability to pay the mortgage to a satisfactory level for the investor.

For example, Ms. Simmons argued, even a small-size servicer with 10 workout representatives would have to deal with 10 different types of loans that represent quite different sets of asset values. Only technology will allow them to create different sets of values and allow for higher processing capacity at the same time, she said.

"There is no such a thing as mass modification." It has to be done at the loan level to ensure the objectives of the borrower, the servicer and the investor are addressed simultaneously.

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