LOGS Financial Services Expands into Subprime

LOGS Financial Services, a default management and outsourcing provider, is expanding its portfolio of services beyond default management and into the subprime, chattel mortgage and other nontraditional loan products.

The chattel market, mostly manufactured housing, consists of property not attached to real estate.

Gerald Shapiro, chairman and CEO of LOGS, said the company is always developing new methods to serve its clients and increase the scope of its business. In addition to expanding into subprime and manufactured housing, LOGS is growing its default management business services to handle mixed collateral loans, home equity and other atypical financing arrangements. LOGS views these opportunities as appropriate hedges against the constant consolidation of the "A" paper mortgage market to a few extremely large national servicers.

LOGS has formed a subprime default management group in its outsourcing division. The new group includes the outsourcing of traditional subservicing of B&C credit quality loans with an emphasis on the manufactured housing market. LOGS has several key client relationships in the manufactured housing industry, and it recently entered into a contract to service delinquent loans in Baton Rouge, La., to complement the work already being done in its Northbrook, Ill., and Jacksonville, Fla., locations.

LOGS said that Michael Barron, the company's general counsel and former general counsel of The United Companies, was instrumental in identifying the need for diversification into this space.

"Losses in the manufactured housing market continue to rise to the point where fewer financing opportunities exist for the purchase of new units," he said. "This has resulted in higher pricing for these loans and, consequently, a higher default risk. By applying the process-driven structure of our outsourcing division to the management of these loans for our servicing clients, we are confident we can reduce the cost of liquidation while ensuring the best possible recovery on the collateral value," he said.

The new subprime group reports to Fred Zakula, LOGS' senior vice president and a 23-year veteran of mortgage servicing.

"The challenges of managing manufactured housing loans are considerably different from those in typical real estate mortgages," Mr. Zakula said. "The legal skills are different. There are risks of the real estate not being included on the security instrument. In some cases, we find our clients only have a security interest in the home without any lien on the real estate at all."

Gerry Alt, chief operating officer at LOGS, said many lenders are confused by manufactured housing loans in their portfolio because they sometimes don't know if the loan is secured by real estate or not.

In other cases, even if the loan is backed by real estate, a lender pursuing foreclosure may find just a bare plot of land, because the homeowner has taken the home away.

"It's not something A-paper lenders have generally had to deal with," Mr. Alt said.

He noted that LOGS has been involved in the subprime market for years, but the diversification of its subprime outsourcing business is a chance to expand its market and respond to growth in the subprime market.

Mr. Alt said that although home equity loans are not always subprime loans, many home equity lenders have moved into the subprime market.

In addition, the heavy loan origination volume of recent years may increase demand for subprime default management expertise, he said. In the rush to buy loans, some lenders may have picked up some product that is different from what they expected.

"A-paper lenders are finding they have some alt-A and some B and maybe even some C paper on their hands," Mr. Alt said.

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