Ocwen Details Success in HAMP Program
Ocwen Financial Corp., the Palm Beach, Fla.-based specialty servicer of subprime mortgages, has emerged as the industry leader in converting trial Home Affordable Modification Program loans into permanent status.
According to the Treasury Department's report through April 2010, 83% of Ocwen's customers with trial modifications under HAMP had permanent modifications. These borrowers received median payment reductions of 36%, more than $500 per month, the report said. So far the four largest servicers in HAMP-including megabanks-have conversion rates below 30%.
What does it take to be a leader in providing modifications that are sustainable in the long term?
Ocwen attributes its conversion success mainly to in-house loan risk mitigation expertise, scalable up-to-date technology and proactive behavior-based customer outreach.
Ocwen borrowers benefited from the fact that it already had established practices that would scrutinize and verify documentation from borrowers before putting them into a trial modification, which was not common among servicers until Treasury implemented the June 1 deadline. Now HAMP servicers are required to gather all loan documentation prior to initiating new trial modifications.
It is process-intensive, Ocwen president Ronald Faris says, but it benefits homeowners and HAMP, which is why Treasury recognized Ocwen's upfront documentation approach as a way to improve HAMP success rates. "Loan modifications are the best solution for helping American families avoid foreclosure, but modifications have to be sustainable, rigorously formulated and effected on a meaningful scale."
Faris says Ocwen loan modification processes are based on its 30-year track record in servicing high-risk loans that were built within its proprietary technology. Ultimately it has helped assist distressed homeowners and deliver more cash flow to investors than they would get from foreclosures.
Ocwen said it has invested over $100 million to build loan-servicing technology that is scalable for high volumes.
In addition, Ocwen relies on consumer behavioral science research and long-standing partnerships with grassroots consumer advocacy groups to enhance borrower outreach and effective communications.
In a testimony before Congress in March, Faris recommended several program enhancements.
Lowering the borrower debt-to-income ratio for modifications or allowing for lower monthly payments on modifications is a proven way, he said.
Ocwen data showing that approximately 15% of Ocwen modifications, including those outside HAMP, involve principal reductions suggest such principal reductions on modified loans are an efficient way to help borrowers remain current.
Also, adding up to funding earmarked for financial education and investing on housing counseling groups also translates into mortgage sustainability.
According to Faris it is crucial that lenders need demand high performance standards from servicers. Requiring underperforming servicers in HAMP to outsource to servicers or third-party servicers that perform better to promote healthy competition translates into better performing modifications.
Since the onset of the mortgage crisis, Ocwen said, it has saved over 100,000 homes from foreclosure.