Short Sales Could be Alternative to HAMP

During the roundtable from SourceMedia’s Loan Modifications Conference in Dallas, Texas, industry experts discussed HAMP and alternative solutions to the program, as well as how to better connect with borrowers before properties go into foreclosure.

Participants included Jay Loeb, vice president, National Creditors Connections Inc.; John Savage, chief technology officer, Bridgeforce Inc.; Paul Wright, SVP of sales and marketing, DRI Management Systems; Dave Zakutny, VP of product development, Foreclosure Management Co.; and Bob Yeary, chairman and CEO, Reverse Mortgage Solutions.

Dave Zakutny described how the government is getting involved with short-sale incentives. "They see that everybody has concentrated so strongly on HAMP and put all of their efforts into it," he told Managing REO.

"When you look at the inventory out there now, I think it’s an eight-month supply of homes through the end of September. The lenders and servicers have to look at something to say, 'What are we going to do with these homes? Do we want to rent them out? Does it make sense for us to rent them out?'

"If lenders have 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, 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, Mr. Zakutny stressed. The foreclosure and REO inventory is going to increase. Option ARMs will start adjusting in 2010, he said.

"You are looking at another huge wave. 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%," he said. "There could be three-quarters of a million to a million extra properties coming into the market if these modifications fall out. 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. Bob Yeary discussed REO Leasing Solutions, a division of Reverse Mortgage Solutions. The company has put together a nationwide network of brokers that can handle leasing out banked owned assets. "We’ve had a lot of investors that are reaching out to us. It’s starting to be very effective," said Mr. Yeary. "You remember the old days of the savings and loans lending long and borrowing short, and all of a sudden and that whole thing collided. Servicers were out there cutting rates significantly working on very thin margins.

"They figured they’d make a loan to a borrower and never have to talk to them. Well, all of a sudden that’s changed. We are looking at servicers that are losing significant amounts of money. So, I think there’s going to be some failures in the servicers. I just don’t see how they can survive."

In the reverse space, the company is trying to make people aware of the fact that the reverse mortgage is an option for borrowers 62 and older and for consumers that have good equity.

"We are actually working on a pilot program with Fannie Mae to work with one of the major banks to look at their portfolio and see if we can take some of the Fannie Mae loans and do some curtailment and do some type of a program to help these people. You hate to throw a senior out of their house because of foreclosure when they’ve got $20,000 to 30,000 in equity," Mr. Yeary said.

"They can’t get loans to refinance. It’s going to get a lot worse before it gets better. I hate to say that because everyone wants to be optimistic."

Foreclosure Management Co. has a sister company that is doing an REO tenant lease program, added Mr. Zakutny during the roundtable. The company is talking with regional servicers and a couple large servicers.

"That is really varying so much in terms of what they want to do. We have some that want to take a deed-in-lieu program. They’ll lease it back, but they’ll still market the property," he said.

"Then we have some who say, you know what, we’re going to go out and just give interest only mods, do principal reduction and then we’re going to wait. They’re just going to hold on to them. They are talking about terms of four, six, 10 years on these things. Obviously, they’re hedging their bets that the market is going to recover."

A lot of success depends on the servicer, the type of portfolio that they have and what their long-term visions are, he said.

"If they are run by hedge funds, you’re probably not going to hang on to the thing for a couple of years. They are going to say, put the thing on the market, get it sold, and move on to the next one," Mr. Zakutny said.

"Also, it’s public perception. I don’t see any of the big five that are going to go out there. They are going to try to do everything they possibly can to make sure they can do whatever they can for the borrowers. As long as it makes sense and they can keep as many borrowers in the property as they can, that’s what they are going to do."

John Savage is helping two top servicers craft different treatment programs. Mr. Savage says the challenge right now is that HAMP only goes so far, but there are many net present value positive solutions that servicers can take, even on non-owner-occupied.