Problems With HAMP Modifications

At the Loan Modifications Conference in Dallas, presented by Mortgage Servicing News, servicing industry specialists gathered together to share what they are seeing first-hand in the trenches regarding the latest on handling HAMP guidelines and what servicers are doing to keep borrowers in their homes.

Third party providers are partnering with servicers in the quest to fight foreclosures while developing creative ways to deal with high volumes of real estate owned assets. With all of the focus on the Home Affordable Modification Program, many lenders and servicers appear to be ignoring solutions like short sales, deed-in-lieu, or reverse mortgages for customers in that age group. “The requirements are constantly changing and you can’t keep up with that process, but some of the other treatments, we have started to ignore,” said John Savage, chief technology officer, Bridgeforce Inc., during a roundtable discussion at the show. “A lot of that is all gone by the way side because they are having to put all of their effort on these never-ending, never-shifting requirements for HAMP. A lot of the organizations have put everything into the HAMP bucket.” The thing that HAMP has ignored is, where is the customer going to be from a cash position afterwards? Mr. Savage said he believes there are more loans that can be treated with something else other than HAMP.

“We need to get back to basics if you will and start focusing on how I can at least continue to treat those people that are treatable. I can’t ignore good underwriting policies associated with doing modifications. If I can’t get somebody to a positive cash position than it doesn’t make sense to do anything with that. Then it comes down to the net present value decision. Is it deed-in-lieu, is it short sale or is it going down the REO path? We have to get back to making those good decisions.”

Clients are looking at creative programs to deal with non-owner occupied properties. I think the tide is turning. Jay Loeb, vice president, National Creditors Connections Inc., says HAMP is getting to where it needs to be but the industry should start looking at the other processes as well and having a game plan to stem the tide of losses that you get with an REO.

“If they don’t qualify for HAMP, what is being done? From our client’s vantage, they are just now starting to look at the secondary processes. What is the borrower outreach for the non-owner occupied?’

With the large volume of inventory out there, lenders and servicers have to look at other options, adds Dave Zakutny, vice president, product development, Foreclosure Management Co.

“What are they going to do with these homes? Does it make sense to rent them out? If they are having extended timelines in terms of selling their REO properties, do they want to have that asset sitting there empty and just basically a money pit, throwing money after it, or do they want to maybe lease it out, rent it out, at least get some money coming back from it?”

That is going to be key over the coming months through next year and probably going into 2011. The inventory from what everybody can tell is going to be increasing. Option ARMs are supposed to start adjusting in 2010. The industry is looking at another huge wave of foreclosures and REO.

“If you talk about the number of modifications that are supposed to fall out — the latest projected numbers were three million potential mods. Depending on the recidivism rate, people are talking about anywhere between 50%-75%. There could be three-quarters of a million to a million extra properties coming into the market if these modifications fall out,” said Mr. Zakutney.

"The dirty little secret is the employment factor. It doesn’t matter if you do a principal reduction or what your payment amount is, if you don’t have a job, you can’t make the payments. I don’t think a lot of people are looking at that. They are going to have to do something with these things.” Read the December issue of Mortgage Servicing News to find a full transcript of the roundtable from the conference.