On the Road Again

I was pleased recently to chair SourceMedia's annual Mortgage Servicing Conference in Dallas. It was a lively and well-attended show, and watch out for a related conference to follow in July! (July 20 and 21, to be exact, a Loss Mit Conference at the Sheraton Dallas.)Here's what I told attendees to start off the show.Could there be a more exciting time for the servicing industry? Delinquencies, defaults and foreclosures are soaring, and there's never been a time when skills in loss mit, REO and special servicing have ever been as valuable.Also, there's never been a time when the deck floors are shifting so much under the industry. There's an entire new financial landscape, where Freddie Mac and Fannie Mae have been taken over by the federal government, Wall Street as we have known it has imploded, and servicing has continued to consolidate to the point where the top five residential servicers control two-thirds of a $10 trillion market.And, as if all that's not enough, there are constant new challenges and new ways of doing things. To their credit, servicers embraced the concept of loan modification as vast numbers of borrowers became stressed, but then found that more than half of those borrowers were defaulting again. Now, the Administration has proposed a plan to modify up to four million mortgages, and to encourage another five million refis through Freddie and Fannie. That's an enormous amount of business for an industry that has lost 40% of its workers over the past two years. This is an unprecedented challenge for the entire mortgage industry. And another big one is the concept of judicial cramdowns of mortgages in bankruptcy proceedings, which has been proposed by both the Administration and Congress.Anything I'm leaving out? Oh yes, the Federal Reserve has agreed to buy, and has started to buy, $1.25 trillion in mortgage-backed securities to get the stalled secondary market out of its deep freeze, causing interest rates to fall to their lowest ever. So now, if what many have predicted as a refi boom comes to fruition, servicers will be facing the risk of massive runoffs of their valuable servicing. Oh well, at least that's one variable servicers are already familiar with!Of course, the flip side to all these challenges is opportunity. A refi boom can give an efficient servicer the opportunity to siphon off business from his competitor. A successful modification plan, which might involve any or all of a reduction in rate, an addition to loan duration, or a reduction in principal, can turn loans headed for default into performing loans, helping to stem losses and the capital required to be held in reserve to resolve them. Successful mods can also help put a floor under tanking home values, as the flood of foreclosures has driven home prices down in market after market around the country.Servicing has always been a countercyclical play to mortgage originations, and that's never been clearer than now, when servicing has become of paramount importance and has also spurred countless new vendor applications in the hot button areas of REO, loss mit, and loan modification. Specialties in these areas and in default servicing are now invaluable to your holding companies.That's why we're delighted to see so many of you here at the Mortgage Servicing Conference. Over the next couple of days, we're going to bring you trend and policy discussion, but also hands-on how-to information on how to cope with this brave new world. We have lenders and vendors, state and federal officials, and specialty specialists ready and willing to talk about strategies on how to survive and thrift in this current environment. We'll see what the economic outlook is, as well as the prospects for more mergers and acquisition activity.