At the recent Mortgage Bankers Association's Secondary Market Conference in New York City, I got to moderate a panel that discussed both originations and servicing issues.
Panelists were Gagan Sharma, president and CEO, BSI Financial Services Inc., Irving, Texas; Bruce Backer, president of LoanSifter Inc., Appleton, Wis.; Robert D. Yeary, CEO, Reverse Mortgage Solutions, Spring, Texas; Philip DeFronzo, president, Norcom Mortgage, Avon, Conn.; and Rick Pishalski, mortgage lending, Carillon Capital Partners LLC, Great Falls, Va. Moderators were myself and colleagues Lew Sichelman and Bonnie Sinnock.
Fogarty. Is there a chance that there will be any [new] subprime mortgage securities in the next five years?
Sharma: If the yield is high enough...
Backer: I think in the absence of the government shutting them down, it will re-emerge...
Sichelman:...Are [investors] going to come back with some kind of strength like they did before?
Sharma:...The guys who are probably more sophisticated...who have a better sense of the underlying collateral and the underlying loan will probably jump in first...It would be seem that...just like any other market, [if] they could deliver some good performance...others will see that good performance and then they'll want to replicate a portion...
Fogarty:...The HAMP program is ratcheting up from doing tens of thousands of modifications now into the hundreds of thousands range. What do you think is the likelihood of success in helping millions of customers and also how many do you think will redefault?
Sharma: HAMP historically has had a redefault rate...from what we've seen from statistics in comparable servicers, between 30 and 50%. Even if one gets more aggressive and says 20% there is still a significant chunk of permanent HAMPs that are going to redefault and that doesn't count a lot of the ineligible people who didn't even qualify get to the trials, who didn't get to the permanent part. So I remember a statistic like the total eligible loans for HAMP is like 1.5 to 2 million and we've got maybe about 300,000 permanent HAMPs right now, so even if you double the permanent HAMPs, that gets you to about 6,000. So there's at least another million who are probably not going to be helped from a HAMP perspective. There may be other ways to help them. We are cautiously optimistic about the HAFA program...
Fogarty: Any idea how long the flood of foreclosures will take to work through the system. Three years, five years, 10 years?
Sharma: What I'd say is three or more.
Fogarty:...There's such an enormous load of short sales and deeds in lieu...are they going to be effective?
Sharma: They are tough transactions...and I think the industry will have to ramp up for that. We did that for HAMP...
Yeary: It's the age-old problem. When the borrower goes into default...they don't want to talk to you...Doorknockers, repetitive phone calls, robo...phone calls. That's the only way you can get through...
Sharma:...There isn't a silver bullet for it. You've got to try different approaches because different borrowers respond to different communication methods.
Fogarty: Bob...reverse servicing is quite a bit different from forward servicing, why don't you give us a little perspective?
Yeary: You have to have your own custom system. You can't rewrite your normal forward system...If the borrower doesn't make a payment we can change the plan, we can open a line of credit to a fixed payment, they've got all kinds of alternatives...We don't have escrows...Our phone calls are a lot longer because our average borrower's 73 years old and sometimes they're just lonely. We've had cases where the people call in and they get to know our staff. We've had a couple cases where we've actually saved some people's lives...You hear all the bad press about abusing seniors. Everyone that we know really takes their time to make sure they do a good job with the senior to give him a fair and equitable deal. It's a good program for some people and for some people it's not.
Fogarty:...We've seen a tremendous consolidation on the servicing side...The top five control 50 or 60% of the market do you see that continuing or do you see a role for the smaller and midsized player going forward?
Sharma: One thing that we see is on the special servicing side is...there is a need for more agile, smaller institutions to deal with those workouts...When you get into conforming, clean portfolios there are certain economies of scale that come into the picture...The question comes is there a dis-economy of scale that you get so large that growth beyond that point actually leads to decrease in quality?
Sinnock:...Underwriting standards today,...are they too tight?
DeFronzo: On a forward basis, I think they're pretty much where they should be...Maybe they'll loosen up a little bit...
Pishalski: I think over time that there you'll see...a little more rationalization...
