At the recent SourceMedia Loss Mitigation Conference in Dallas I sat down with industry experts for a chat on the latest in loss mit.
They included Steve Ozonian, chief real estate officer of Carrington Holding Co.; Jay Loeb, vice president and a principal owner of National Creditors Connection Inc.; Ronald Jasgur, president of Woodward Asset Capital; James Zeldin, executive vice president at Default Resource; and Steve Collier, vice president of loss mitigation at Prommis Solutions.
Fogarty: We've had this show for three years now and it seems like every year there's a new loss-mit tool of the day. A couple of years ago, obviously, loan modifications were all the rage and then last year, the short sale was booming. This year we hear a lot more about deeds-in-lieu of foreclosure. When does a deed-in-lieu make sense to do?
Collier: Well, first of all, the very first component would be affordability. I mean you don't do a deed-in-lieu in Georgia. That doesn't make sense, right? It's cheaper to go to the foreclosure process so I would say where it makes sense and is most affordable to the servicer than it's also a viable option to the borrower.
Loeb: Judicial foreclosure makes a lot of sense. There's been some talk and I've had some talks with folks about doing a larger scale deed-in-lieu initiative in the foreclosure states. Even at the time that the attorneys are working the file having the attorneys solicit for a deed-in-lieu and reimbursing the attorneys to do that process in lieu of a foreclosure. They already have the title, so they are well equipped to do it. That's very much at the back-end. But I think it's been through some frustrations from the investor world saying: How come more deeds-in-lieu aren't being done? So I think that's the need for that. You're going to have people that vacated their homes six months ago. There needs to be a resolution for that. Foreclosure can be very expensive in those states. Offering them $1500 for a deed-in-lieu is actually ahead of the game. Steve is nodding his head because he knows that, he's seen that firsthand. It just has to be the right strategy.
Fogarty: One I'm hearing a lot about now is cash for keys. Not that people haven't done that for a long time, but now they're giving a lot of money for keys, $10,000 or $15,000 when it used to be $1,500 or $2,000. What's the rationale for giving more money?
Jasgur: We had a deal just recently that came across our desk where the bank was offering $26,000.
Fogarty: That's a lot of money.
Jasgur: To a guy who had not made any payment in two years, but to be honest with you, that was to move him out of a house. In today's market it was a $350,000 house, top-end maybe, and they were offering $26,000 for him to leave. He was having a tough time clearing title to do it but…
Fogarty: He could start making his mortgage payments again.
Zeldin: That created more hazard, more people saying, I'll take that.
Loeb: Yeah, word gets out that that's what's going on.
Fogarty: I mean what it used to be was they'd say: Here's enough money for first month's rent on your rental while you get yourself cleared up. So what's the idea behind giving somebody $26,000?
Loeb: I'm scratching my head, too. I have no idea.
Collier: It boils down to obviously what you're going to say is it's a much higher price home.
Jasgur: No. Originally it was. In fact originally the purchase price five years ago was $550,000 or $600,000.
Zeldin: Most servicers are running the various options through their financial office, taking into account the title and the assets. What's the cost of the various foreclosures in judicial or nonjudicial states, what's the cost of deed-in-lieu or short sale? Determining what's the probability of a borrower potentially regaining employment and becoming current, in a particular asset and putting it all into the financial model and ultimately dictating maybe what one top two or three different resolution options are—depending on whether they're an asset of the servicer, or whether they're servicing on behalf of an investment company or a trust. The different alternative requirements are based on the particular ownership of the underlying collateral. So, once they've identified what the financial structure could be to optimize implementation, that's really where they're being guided. Their loss mitigation counselors are being guided to push a short sale over some deed-in-lieu versus a mod, or support a loan sale, whatever, or take it through foreclosure and turn it into REO. The one thing we've been able to do as an industry is kind of to extract the decisioning from the lap of a staff and leverage technology in such a way that it promotes some consistency in our decisioning. Part of what differentiates one server from another is how granular do they get in the analysis. When does it make the most sense, in Georgia for example, to pursue a judicial foreclosure or do a loan sale? Is there an opportunity to sell the asset on the secondary and offset the costs on behalf of the investor? What's the investor's outlay for a particular resolution alternative?
Fogarty: I guess also the lender is thinking about the potential for vandalism. Probably makes sense to get the borrower out of the house in case he gets frustrated and starts breaking things.
