Despite Pressure On Mods, Servicers Should Slow Down
Dallas-As servicers face capacity issues, redefaults and growing political pressure - such as the industry's Nov. 1 deadline to complete 500,000 modifications - the most important lesson learned so far is to "slow down."
"We went way too fast during the boom," says Daniel Gotlieb of Desert Schools Credit Union, whose 15 years in loss mitigation experience include starting the first loss mitigation department for his credit union. When Arizona, Florida, California and other states were booming, he said, the industry lost sight of what was going on, forgetting it no longer is "the time of our parents who bought a house for $50,000 and stayed there forever.
"The societies we live in today are much more transient. On top of that are the emerging markets. But many of the lenders who served that market really did not understand it. Therefore we need to slow down as an industry and accept that it did not work. Let's not repeat it. Let's have good risk management solutions at the front."
Effective, upfront risk management solutions and monitoring practices will help the industry be profitable and stronger in the long run. So investing time, automation, outsourcing and staff expertise in loss mitigation is the best strategy for today's overwhelmed mortgage servicers, especially small-size shops.
If the government is going to apply a lot of pressure, says Alex Santos, managing director and COO of Digital Risk, Maitland, Fla., servicers need to find more efficient ways to respond.
"For example, many investors are making very good money putting small special servicers at work and then making 20 points on a loan flipping it. My point is that there is value there if the servicer is provided with an economic opportunity to do a good job on the loan and add value. We work with RMBS investors. A lot of investors implement that kind of concept."
The government needs to create smart incentives that will encourage the servicers to start investing in loss mitigation, he says.
Another problem, according to Steven Paton, SVP of loan administration at Marix Servicing LLC, a loan servicing company founded in 2007 in response to distress in the U.S. that focuses on loss mitigation technology, is inefficient processes that become more problematic if servicers rush in and out of a loan workout.
"Marix was built to deal with each loan at a time and many companies deal with loans like credit cards, like collections operations. Some clients wonder why we even have collectors. They inquire what are their loss mitigation opportunities. They do not want the short-term fix where the borrower may go back into default. Models change."
Mr. Paton has over 20 years of mortgage business experience, and the one lesson he says he has learned over and over again is that, "You should always continue to look at what you do and how you do it. A lot of people got caught doing things the way they have been doing it for the past 20 years without changing anything and that's why now they struggle with the volume, because the water doesn't fit in the pipe. And in some cases maybe it's too late to change the way you do things to be able to handle the volume. Now you're overloaded, you don't have the capacity.
"It's like changing the tire of a moving car."
The biggest lesson is that the market is different, now it's focus is on loss mit.
He says, however, that he knows "a lot of people with a collection background who still believe that collections are king. We're in a different space now. Yes, there's special servicers, there are borrowers that need to be reminded to make that payment, but the key is to find that middle point where the borrower is not able to make that commitment and that point now is earlier and earlier in the process, and to some extent the current environment is inspiring them, they are looking for deals. Borrowers call us up and say, 'Where is my modification?' Rather than you asking for a payment it's all about lowering a payment. The borrower is asking what can you do for me?"