Wild and Wide Open
Servicing was the story of the year in the mortgage industry last year, and it is equally important so far this year. While the originations market has achieved some stability through government intervention, servicing remains a wild and wide-open niche that servicers must navigate with care.
That's because for all the foreclosures that have gone through the pipeline in the last two years, many, many more remain to be done before a normal market can resume. And the success of the government's aggressive loan modification and refinancing programs remain up in the air, with only a few thousand permanent modifications on the books after almost a year of effort.
But it's not just hard times in the servicing sector. There are also remarkable opportunities to profit. Managing real estate-owned, short sales, servicing software, recruiting the thousands of new servicers required to handle the deluge of distressed loans (many of them former originators) are just a few of the expanding areas in the business.
All of these things will be on display at SourceMedia's 4th annual Mortgage Servicing Conference, to be held April 8-9 in Dallas, which we are sponsoring and chairing. The show has assembled the top lenders and vendors to talk about servicing essentials.
Loss mitigation in general remains the most important topic for servicers small and large this year. The foreclosure and REO process is usually nothing but a black hole for an institution's balance sheet, and so "bad servicing" must be super-efficient in order to pare back losses resulting from overdues and defaults.
Will 2010 see the rest of the logjam of defaults work its way through the process? Probably not. Next year, though, may see the end of the default bubble if lenders, vendors, customers and the government work together to get it done.
2010 may also see something that hasn't happened in the market for several years. If the Fed raises interest rates to fight inflation (which is inevitable, given the trillions of dollars blasted into the economy by the government), mortgage rates probably will rise as well.
And that will squeeze off refinancings, slow prepayment rates, and make the servicing asset even more valuable than it is now.
That is already happening, although SRPs have come down as the big four servicers (Bank of America, Wells, Chase and Citi) exercise their muscle.