Alternatives to HAMP?
Dallas-In part two of the roundtable from SourceMedia's Loan Modifications Conference here, industry experts discussed more on HAMP and alternative solutions to the program, as well as how to better connect with borrowers before properties go into foreclosure.
Participants included Jay Loeb, vice president, National Creditors Connections Inc.; John Savage, chief technology officer, Bridgeforce Inc.; Paul Wright, SVP of sales and marketing, DRI Management Systems; Dave Zakutny, VP of product development, Foreclosure Management Co.; and Bob Yeary, chairman and CEO, Reverse Mortgage Solutions.
MSN: Do you have any ideas about creative solutions or alternatives to HAMP?
Dave Zakutny: I think that's why the government is starting to get involved now with the short-sale incentives. They see that everybody has concentrated so strongly on HAMP and put all of their efforts into it. When you look at the inventory out there now, I think it's an eight-month supply of homes through the end of September. The lenders and servicers have to look at something to say, "What are we going to do with these homes? Do we want to rent them out? Does it make sense for us to rent them out?" If they are having extended timelines in terms of selling their REO properties, do they want to have that asset sitting there empty and just basically a money pit, throwing money after it, or do they want to maybe lease it out, rent it out, at least get some money coming back from it? That to me is going to be key over the coming months through next year and probably going into 2011. The inventory from what everybody can tell is going to be increasing. The option ARMs are supposed to start adjusting in 2010. You are looking at another huge wave. If you talk about the number of modifications that are supposed to fall out - the latest projected numbers were three million potential mods. Depending on the recidivism rate, people are talking about anywhere between 50%-75%. There could be three-quarters of a million to a million extra properties coming into the market if these modifications fall out. The dirty little secret is the employment factor. It doesn't matter if you do a principal reduction or what your payment amount is, if you don't have a job, you can't make the payments. I don't think a lot of people are looking at that. They are going to have to do something with these things.
Bob Yeary: We've just formed a company REO To Lease. The objective of the company is to help people that have REO, what are they going to do with it? They can lease it out. We've put together a nationwide network of brokers that can handle that. We've had a lot of investors that are reaching out to us. It's starting to be very effective. I think the other thing we have to think about, Paul hit on it when we were talking about the economics of the servicers. You remember the old days of the savings and loans lending long and borrowing short, and all of a sudden and that whole thing collided. Servicers were out there cutting rates significantly working on very thin margins. They figured they'd make a loan to a borrower and never have to talk to them. Well, all of a sudden that's changed. We are looking at servicers that are losing significant amounts of money. So, I think there's going to be some failures in the servicers. I just don't see how they can survive. Dave hit it on it to with option ARMs. Those are huge. That's coming down the pike. In the reverse space, we try to make people be aware of the fact that the reverse mortgage is an option for borrowers 62 and older, people that have good equity. We are actually working on a pilot program with Fannie Mae to work with one of the major banks to look at their portfolio and see if we can take some of the Fannie Mae loans and do some curtailment and do some type of a program to help these people. You hate to throw a senior out of their house because of foreclosure when they've got $20,000 to 30,000 in equity. They can't get loans to refinance. It's going to get a lot worse before it gets better. I hate to say that because everyone wants to be optimistic.
MSN: Can the administration control the rates to avoid it?
Dave Zakutny: That's what they are talking about, keeping them as low as possible. How long are they going to be able to do that? That's the point. Because good lord willing, the economy does start recovering, they are going to have to bump the rates up at least a little bit to try to keep up with inflation. Then, what's going to happen? There were some option ARMs that their payment might go down depending on what the rates are. So, you are not quite sure. Maybe it might be a nonstarter once they start adjusting depending on what the rates are.
Bob Yeary: For a friend of mine who ran a very large servicing company, when he went in and looked at their option ARMs, on the payment that went out to the borrower, it showed the four choices and circled the one that said the 1% payment. He immediately changed that. People get hooked on a 1% payment and then all of a sudden they're now at 9%. There are 600 margins on these things. It's a scary time.