Now more than ever effective loss mitigation techniques are needed. Today’s servicers need to look at every possible avenue—loan modifications, refinancings, short sales, deeds-in-lieu of foreclosure, doorknockers, everything—to help them cope with overdues that remain at the highest levels in a generation.
Much scorn has been directed at the federal government’s HAMP loan modification program. But it has successfully steered 635,000 homeowners out of the foreclosure process, and with a redefault rate that is currently just 12%, said Laurie Maggiano, an architect of the program, at our recent Mortgage Servicing Conference in Dallas.
Of course, HAMP was designed to rescue millions of borrowers, not hundreds of thousands. And that 12% rate could well increase. But, it is not the only loan mod show in time. Maggiano pointed out that proprietary mod programs have accounted for another two million mods (1.24 million in 2010, according to Hope Now). So that original scorecard is being met, through a combination of private and federal efforts.
Short sales have gone from nowhere a couple of years ago to white hot. There is a distinct advantage in doing a short sale instead of a foreclosure—there is no court involved, as there are in dozens of states on foreclosures. However, they work better in some markets than others. The property must realize a big enough sales price to make it worthwhile for the lender to do (they take a hit in every case, but the loss mit strategy comes from minimizing those hits). So California, say, is a good market for short sales while Detroit is probably not.
Deeds-in-lieu have similarly gone from nowhere a few years ago to being an active part of current loss mit.
Aggressive outreach to borrowers in trouble is an effective loss mit strategy. Too many servicers tell their borrowers “call back after you default” because they are swamped with overdues and foreclosures. Doorknockers are a good technique here. Borrowers at first fear they are debt collectors, but once they find out otherwise, often work with them to resolve overdues. Doing refinancings for customers where more affordable loan terms can be achieved is also well worth trying.
All of these techniques and others besides will be discussed at SourceMedia’s third annual Loss Mitigation Conference, to be held in Dallas July 18-19. We will be happy to chair this yearly bonanza in the latest in loss mit techniques.
