Problems with Loan Mods
Dallas-Servicing industry specialists at the SourceMedia Mortgage Servicing Conference here discussed the latest developments in loan modifications, including problem areas like verification. The excerpt that follows features (from left in adjacent photo) Jerry Alt, CEO of Heart Financial Services; Jeff Freud, founder and president of LoanMarket.net; Nicholas Bratsafolis, senior managing director, structured finance, Lend America; and Jay Meadows, CEO of Rapid Reporting.
Paul Muolo: If you had to name one thing you could change right now in the way you do business, either on the federal or pertaining to federal or state regulations that would make your job easier or make loan modifications go more smoothly, what would you change?
Jay Meadows: From the fraud standpoint, and certainly the income side, I would be more descriptive in the language about how you're going to go about verifying whatever that information is, whether it's income or employment or whatever the actual problem that you're after. But be definitive in your language so there's no wiggle room for those who might not have taken those steps on their own.
Jerry Alt: From my standpoint, because we do a lot of borrower contact, a safe harbor or an exemption from the Fair Debt Collection Practices Act would be extremely useful. We find that when you start every conversation with a warning, it puts you into a negative situation with that borrower who has already been facing pushback or an inability to communicate with their servicer.
Jeff Freud: I would say, I mean, a lot of the new listings that we have on our site are reperforming vs. the modification, so it definitely becomes pertinent. It affects our clients on the buy side and ... there's been a lot of negative press. There's been a lot of activity on the reperforming side. I don't know if that's a result of early modifications by the lenders or anything, but there seems to be a lot of negativity floating around. Those are loans that are not really getting any traction on the buy side on our side.
Paul Muolo: And in fact, the negativity affects the pricing now doesn't it?
Jeff Freud: It does. It definitely separates the bid-ask as far as that goes. A lot of ours are scratch and dent that have come in. The only ones on that field are scratch and dent that have bought these things, that have gotten them reperforming and they come in and they put that they're performing now. Obviously, the question was, what's the chain, what's the payment chain going back 36 months? I mean buyers are asking, even individual buyers are asking great questions and that's where the site is learning and building that in so we can provide that platform on our platform. But ... they don't want those. I mean just as Leonard, like he said, I'm sure everybody else, with the modifications, it's just not a big part of - people either want the nonperformings and want to work them out themselves or they want loans that have always been performing.
Nicholas Bratsafolis: Well, we're not in the modification business. We're a mortgage bank working with the portfolio holders on a refinance strategy to get them to maximize their principle recovery. But I would share really what I think Tom Deutsch, from ASF, said earlier in the conference that Hope for Homeowners could be a powerful tool if government would understand how this whole process works. And there's a number of fixes that need to be done, including the one that Tom mentioned. The three that Tom mentioned were certainly important but the one that he did not get into in any detail, although he and I talked about it later, was the fact that HUD now is requiring the current lender to verify the fact that the original loan that was done contained information that was correct. So in other words, someone in a stated deal three years ago and that loan was wrong because someone put a 1003 in front of a borrower that said, if you make $80,000, you qualify for a $300,000 loan, well, he signed it. Those people are out of the box right now for Hope for Homeowners, which I understand the whole moral crisis that we're worrying about the moral hazard, but the reality is, you're knocking most of these people in the stated deals out of the box. That's a problem.
Paul Muolo: Does anyone here think stated-income lending is ever going to come back after what we've seen?
Jeff Freud: Yes, 100% absolutely. I think it will come back and I think it should. It feels a need. I can tell you on our site, income and credit scores for the most part are irrelevant. People just want skin in the game. They want to see the equity and the valuation of the property.
Paul Muolo: Now who is going to buy it? Who's going to own this paper? Have you thought it through that far?