Loss Mit 2.0
Despite some quarterly earnings showing gains from originating more loans, the mortgage industry continues to be obsessed with reducing losses. After all, a dollar in revenue is not necessarily a dollar earned, but a dollar lost goes intact to the bottom line.
While it is impossible to run a profitable company or industry just by reducing losses or costs, there are so many loss opportunities for the industry that it may be forgiven for appearing to believe it might.
So, loss mitigation continues to be an industry obsession for the second straight year.
Mortgage servicers have always had loss mit as a weapon to manage portfolio losses, but what's going on currently can fairly be classed as Loss Mit 2.0. Whereas servicers used to look to loan workouts and efficient real estate-owned sales, nowadays little-used techniques have come to the forefront.
This year's flavor is the short sale, where an attempt is made to sell the home of a distressed borrower before the home hits foreclosure status.
The sale, if made, is "short" of what's owed, but the idea is the servicer will make more from this mode of disposition (and consequently mitigate its loss somewhat) than to take it through a costly foreclosure and REO sale process.
Loan modifications were last year's last word in loss mit. While the bloom is definitely off the rose here, the final verdict is not yet in.
Lenders are doing hundreds of thousands of mods, either on their own or through the government HAMP program (Home Affordable Modification Program).
This is another way of avoiding foreclosures and REO sales, but unfortunately in many cases it's just a stopgap measure. Many borrowers are having trouble qualifying for them, and those that make it through the trial period could still fall out and redefault. The question isn't if they will; the question is how many.
All the latest techniques in loss mit will get a full airing in our upcoming Loss Mitigation Conference, to be held July 21-22 at the Westin Galleria in Dallas, the site of our highly successful Mortgage Servicing Conference last month.
Topics to be discussed include what's working today, new servicer initiatives, negative equity, making and maintaining borrower contact, short sales, REO reinvented and key regulatory issues.
It promises to be a hot show on a hot topic in a hot city (both physically and literally: many servicers and loss mit specialists have shops in the Dallas area).