Players in a cyclical business, mortgage servicers expect there to be times when they make good money and times when they survive on very thin margins. When borrowers began to default in 2005, most servicers probably assumed that they were entering that phase when more money could be made as they collected fees for helping borrowers get back on track with their mortgages. Unfortunately for the American homeowner, the mortgage industry and its regulators, it didn’t work out that way.
Mortgage servicers have watched their portfolios burn as delinquency turned to default and eventually, loans went into foreclosure and then REO properties turned into shadow inventory. When it looked like things couldn’t get worse, attorneys general swooped down to investigate document practices and performing borrowers mailed in their keys in a wave of strategic defaults.
Now, seven years after the mortgage industry first entered the downturn, servicers are finally seeing their businesses stabilize. Many of the defaults have worked through the system, new technologies and skill sets inside the servicer’s operations are doing a better job of helping borrowers recover and repay their mortgages, and the government has already contributed what help it is able to add.
Just when it looks like the business might begin to return to some sense of normalcy, the government launched the Home Affordable Refinance Program 2.0. Whether the servicing operation is owned by a bank with an origination arm or not, this program represents both a great opportunity and a real risk for mortgage servicers.
For the first time, the federal government has advanced a program that is meant to help borrowers who are still paying their mortgages, but still want to take advantage of historically low interest rates by refinancing. One of the problems with the first HARP program was that the loan-to-value limits made the program inaccessible to the millions of underwater borrowers across the country.
The elimination of the LTV limitation is only one of several relaxed guidelines that the government has built into the new HARP 2.0 program. It’s designed to qualify more homeowners for mortgage refinances than were approved under the original Home Affordable Refinance Program. Naturally, millions of American homeowners who feel that they have been ignored by the industry and the government are going to rush to nearby mortgage lenders to get in on this deal. This is the opportunity for mortgage servicers. It is also the threat.
