Delinquencies: Making Lemonade From Lemons
I love documents - 10Ks, 10Qs, S-1s, S-2s, take your pick. Documents filed with the Securities and Exchange Commission don't lie. Actually, that's not necessarily true.
Let's back up a minute. Documents aren't supposed to lie. Then again, professionals that write the documents, might, on occasion, flub a significant fact or two, or three or 300. Hence, the investment community winds up with companies like Enron, MCI, Homestore.com, take your pick.
In a recent 10-K filed by Household International, the residential subprime giant that was recently bought by HSBC, the company revealed that its "two-month-and-over" delinquency ratio had increased to 3.91%.
That might not seem like a huge deal, but compare that ratio to the same ratio a year earlier, 2.63%, and that translates
into a 48.6% jump in delinquencies over a 12-month period. Like I said, I love documents. They don't lie.
Any reporter who has covered Household knows that getting information from the company in regard to what it's up to is a bit like cracking the Kremlin. Maybe that will change under Sir John Bond's HSBC. Time will tell.
But the Household delinquency number is interesting. (See related story in this issue.) It shows that things are not quite right at Household in regard to its mortgage servicing portfolio. The reason, according to the SEC filing, is simple: "continued softness in the economy, including higher unemployment ." (A company spokesman confirmed this.)
Now the question begs: if Household, the nation's third largest residential subprime servicer, is experiencing a spike (the 48.6% number) in delinquencies, is anyone else? Among subprime servicers, the answer is yes, at least that's according to delinquency figures that appear in the Quarterly Data Report, a statistical product published by Thomson Media, the same company that owns this newspaper.
Rising delinquencies are bad news for mortgage servicers. A lot has been said and written about the concept of a housing "bubble" hurting the U.S economy. For mortgage bankers - servicers in particular - nothing hurts more than delinquencies.
Despite what most of the public thinks, delinquencies are time consuming and expensive. The last thing a servicer wants to do is to foreclose. The longer a foreclosure festers, the more expensive it becomes.
So what's the mortgage industry to do in the event of rising delinquencies? Well, servicers can worry or they can do something about it. Vendors take note: Now is the time (now, not later) to start marketing your wares to residential servicers.
If Household's rising delinquencies are any indication, late payments and foreclosures could turn into a real issue over the next
24 months. In short, mortgage banking firms are going to need foreclosure specialists, workout specialists and loss mitigation pros.
Delinquencies aren't fun for anyone, especially the consumer. The last thing a servicer/mortgage banker wants is his/her firm's name dragged through the press in matters related to foreclosures. Foreclosures can make the mortgage banker look bad. Bad equals bad publicity and bad publicity will result in less business, lost business.
Start thinking about the foreclosure picture now, don't wait. If the supposed and dreaded housing bubble turns into even a mini-bubble, there will be plenty of delinquency-related work to go around. Workout specialists: start your engines.
Paul Muolo is executive editor of both Mortgage Servicing News and National Mortgage News. He can be e-mailed at:
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