Servicing

Pre-approval for a loan modification gives customers a much better chance of successfully going through the trial process and approval for a mod, Ken Scheller senior vice president, home retention division, Bank of America, said during a panel at SourceMedia's Best Practices in Loss Mitigation Conference in Dallas. He echoed remarks made by other executives who stressed the importance of "loan analytics" and risk evaluation at the front-end of a loan modification. The process is affected by very low customer outreach rates, which often are as low as 1%. This may be because lenders and servicers can be intimidating to borrowers. The executive said that among the biggest problems faced by lenders and servicers in today's market are that customers may be afraid to communicate with their lenders and may lack knowledge about their options. Sometimes borrowers prefer to communicate with their attorney instead of a servicer or counselor, because they value the one-on-one experience and the privacy it entails, he said. Mr. Scheller also noted that when a foreclosure is in the works there is a "sweet spot" in the first 60 days of processing before actual foreclosure when borrowers have a last chance to consider retention, and this window can be better utilized to the benefit of the borrower when an attorney is involved.

The Obama administration has sent a legislative package to Capitol Hill that strengthens supervision of credit rating agencies and improves disclosures about the risks of structured mortgage-backed securities. The administration wants ratings on structured products to have different symbols than corporate bonds allowing investors to know there is a difference between the two. Second, the rating agencies would provide a "clear report" containing assessments of data reliability, the probability of default, the estimated severity of losses in the event of default, and the sensitivity of a rating to changes in assumptions on structured products, said assistant Treasury secretary Michael Barr. The administration's proposals also are designed to discourage issuers from "shopping" for the best rating. Mr. Barr said the administration "strongly supports" a proposed rule issued by the Securities and Exchange Commission last year that requires issuers to make the same data they provide to their rating agency available to all rating agencies. This sharing of data is expected to encourage other rating agencies to provide additional, independent analysis to the market.

Thanks, in part, to last year's acquisition of Wachovia Corp., Wells Fargo & Co. doubled its residential loan production in the second quarter, including a 111% jump in fundings through correspondent mortgage bankers and loan brokers. Overall, Wells funded $129 billion in home mortgages during the period, $57 billion of which came in through third-party sources. The balance was originated through its retail branches and online. However, the company - which released record earnings in 2Q -- provided no breakdown on how much of its fundings came solely from brokers. (The TPO figure was reported as one.) Meanwhile, home equity or second-lien fundings plummeted to $1 billion during the period compared to $3 billion a year ago. Late last year the bank bought Wachovia, a large investor in payment-option ARMs. The Wachovia franchise included the bank's existing residential production unit, which had been bolstered by its 2006 purchase of Golden West Financial of Oakland, then one of the largest funders of POAs. The GWF POAs turned out to be a major headache for both Wachovia and now Wells because of soaring delinquencies. In the second quarter Wells reported residential charge-offs of $1.8 billion, a majority of which are tied to second liens. Wells has $7.6 billion in nonaccruing home loans on its books and another $7.5 billion in nonaccruing commercial loans. Wells is the nation's second largest residential servicer ($1.6 trillion) and largest commercial servicer ($470 billion), according to the Quarterly Data Report.

National Quick Sale, Jacksonville, Fla., is offering a new program to defaulting borrowers called "Short Sale Alternative to Foreclosure and Eviction." The company says the SAFE program supports the Obama administration's Home Affordable Modification Program and provides an alternative for the significant numbers of borrowers who do not qualify for a loan modification. Under the SAFE effort, the HAMP declination letter informs the borrower that their loan cannot be modified and lets them know of possible alternate solutions to undergoing a short sale. The SAFE notification directs borrowers to National Quick Sale's website or to its call center for assistance in getting their home listed, marketed and sold before the foreclosure process finalizes.

The Federal Deposit Insurance Corp.'s experiment in modifying loans at IndyMac Bank is still showing good results in terms of keeping borrowers in their homes with a low redefault rate of less than 16%. The Pasadena-based thrift failed in July 2008. As receiver, FDIC developed an innovative loan modification program to reduce the mortgage payments of delinquent borrowers down to 38% of their income. Starting in early 2009, monthly payments were reduced to 31% of mortgage DTI on new modifications. Overall, the weighted average payment reduction is 24% per loan. The bulk of the modifications were completed in the fourth quarter of 2008. As of May 31, the redefault rate on nearly 17,400 FDIC modifications was 15.6%. The redefault rate on most loan modifications completed in the fourth quarter was 27% as of March 31. Most servicers in the fourth quarter did not emphasize the importance of reducing the borrowers' monthly payments and only 37% of loan mods resulted in payment reductions of more than 10%. Unless the payments are reduced, "you are almost guaranteeing a redefault," a FDIC official said.

Many residential servicers are desperately trying to gauge the impact of job losses on loan modifications, according to Javid Jaberi, vice president of national servicing for Fannie Mae. Speaking at SourceMedia's Best Practices in Loss Mitigation Conference in Dallas, Mr. Jaberi said loan modification professionals need to stay connected with borrowers who report financial difficulties or admit they are struggling to make payments. "Find out their financial issues and challenges," he told a room full of loss mitigation and servicing professionals. "And how do we remedy that with a short-term or longer-term solution? There is a program for them." As the account gets more delinquent, the borrower often stops calling the servicer, he said. The Fannie Mae executive said it's important for servicers to properly train staff but admitted that with all the new government programs challenges arise. New employees fresh from college but with no practical experience in mortgages can take a long time to train, he said. He noted that from peak to trough housing values have been decimated in several once-hot markets. Five states have seen a decline of more than 30% in values: California, Nevada, Arizona, Florida and Michigan.

National housing prices recorded their smallest year-over-year decline in May — and the smallest decline since December 2007, according to the First American CoreLogic Home Price Index. The decline between May 2008 and May 2009 is 9.2%, compared with a revised 9.7% for April. Since the start of the year, there has been a 2.5 percentage point improvement in the rate of home price decline. First American CoreLogic said preliminary data from June shows even further improvement. But even with the good news, 41 states still had declines from May one year ago to now and 16 of those states had double-digit declines. Nevada, down 26.4%, remained the top-ranked state for annual price depreciation with Florida, down 25.5% close behind. California, Arizona and Illinois round out the top five states for price declines. By market, Riverside-San Bernardino-Ontario, Calif., saw prices decline nearly 30%. The Metro Miami market was down over 29%; neighboring Fort Lauderdale was down 27%, sandwiching Fort Myers and Las Vegas. The four markets with price appreciation were Houston, Dallas, Austin and San Antonio. "Although there has been some improvement in the national HPI, collateral risk will continue to be the main driver of the housing market for the remainder of 2009," said Mark Fleming, chief economist for First American CoreLogic. "Until home prices and the economy stabilize, mortgage performance will continue to worsen and home sales activity will remain flat nationally through 2010."

Mortgage bankers are experiencing a dramatic increase in new servicing hires and loss mitigation staff in order to handle the tidal wave of delinquencies sweeping the nation. Speaking at SourceMedia's Best Practices in Loss Mitigation Conference in Dallas, Stephanie Lowe, vice president for special servicing and loss mitigation for GMAC Financial Services, said her company has added more than 500 employees and developed a technology system in-house to deal with bulk decisions. GMAC Financial Services offers three weeks of classroom training as well as a week of intense on-the-ground training for employees to learn more about how to explain the Home Affordable Modification Program to borrowers. There is no shortage of excellent originators who have the skill set to deal with delinquent borrowers — and servicers are capitalizing on that talent pool, added Scott Gillen, vice president, Stewart Lender Services. Many shops are migrating large numbers of staff from other products, including in-house processors, to early stages of default. These employees are being trained while the company works on technology advancements. "A lot of re-tasking is being done, especially now that refis have leveled off a bit," said Mr. Gillen. "No one wants to let anyone go."

House Financial Services Committee Chairman Barney Frank said Tuesday that he will postpone next week's planned vote on legislation to create a consumer protection agency until after the August recess.The delay was due in part to the panel's busy schedule, but committee officials also said they wanted to give consumer groups more time to respond to lobbying by the banking industry, which is opposed to the bill. Industry lobbyists said this week that their arguments to curb the powers of a new agency were gaining traction. Steve Adamske, a spokesman for Frank, said consumer groups needed time to respond to industry arguments against the new agency and efforts to limit its authority. "Consumer groups and advocates have planned a ground campaign in August and we want to give them time to preserve this agency," said Adamske. The goal is to allow lawmakers more time to "hear from their constituents," he said.

Fortress Investment Group, which controls a mid-sized subprime servicing operation, has hired former Fannie Mae chief Daniel Mudd to be its new chief executive. Mr. Mudd was forced out of the money-losing Fannie Mae in September when the company and its sister firm, Freddie Mac, were placed into separate conservatorships. Mr. Mudd became CEO of the GSE in 2004 in the wake of a $6 billion accounting scandal where the firm's former management understated its prior years earnings. Under Mr. Mudd's stewardship Fannie became a large investor in MBS backed by alternative-A credit loans. The declining value of those securities has forced the GSE to book multibillion-dollar losses. A few years back Fortress bought Centex Home Equity of Dallas, once one of the nation's largest subprime lenders. Centex changed its name to Nationstar Mortgage and eventually ceased originating new loans but remains as a servicer. Mr. Mudd will take the reins of the publicly traded Fortress on Aug. 11. He is currently a director of the company. Fortress, whose shares trade for $3, manages $26.5 billion in assets.