Looking for a New Servicing Normal

Ed Delgado, COO of Wingspan, (right): I don’t think it’ll ever get back to normal. We saw a rare period of expansion of homeownership and affordability so I believe the mortgage industry has moved from a crisis of credit to a crisis of confidence. Customers are very leery about purchasing in the United States. We have record liquidity in the marketplace, we have record low interest rates, we have abundance of inventory, and yet there’s no catalyst that brings buyers back to the market. Some resemblance of house price appreciation I would estimate would take place probably towards the latter part of this year, maybe the beginning of next year, but I don’t see a full-blown recovery period or sustained stabilization until 2014.

Paul Wright, senior vice president, DRI: “What you said about recovery and home prices, they don’t get back to the point where they have been. From the foreclosure standpoint, my clients were asking those questions and giving the same answers four to five years ago. Fast forward five years and they are giving the same answers. As Ed says, we’re never going back to those glory days, but the foreclosure market and the REO market will have to come up with some type of balance. Whether it’s through government encouragement, regulations or just markets taking over, it’s probably going to take over five years for all this to get over. Even though we see the numbers, I don’t think they truly what the numbers could be because there’s a lot out there that the banks don’t put out on the market just because there’s a lot of properties out there that they don’t want to be devalued by the fact that they’re having more distressed assets. …They just sell a few and if the market doesn’t do well they keep the rest back.”

Suzanne Ball, president of America’s Informant, Inc.: “My take on that is somewhat different. I see vacant properties come into the market. However, I see the shadow inventory slowly resolving itself through programs such as rent-to-own. There are other programs that are going to come out to light to liquidate the assets but we are going to be somewhat more creative in getting there. And the election year comes into play. It may be two to three years before we see a full recovery—although I don’t think it’s going to be a full recovery either. It’s going to be a different normalcy.”

Tommy A. Duncan, president of Quality Mortgage Services, (left): “There’s going to be many houses for sale with reduced rates that there’s gong to be a push to sell, there’s going to be a fire sale and people may purchase. But the housing market will not recover until those homes are sold and then sold again…before we see some kind of normalcy in the housing market. … I wondered whether we’ll be able to do that with the current Dodd-Frank proposal of QL and QRL to provide that quality control.”

Frank Pallota, EVP, Loan Value Group, (left): “Wanted to follow up on something Ed said. You’re right. Borrowers are looking differently at the home purchase. What we’ve had for decades, even before the housing crisis, was the ability to transfer risk into the capital markets. There was public and a private ability to transfer risk. And while we have a homeowner that probably is a little bit sketchy about coming back into the market, the capital markets are still very weary about how to transfer risk. We do not see many private label securitizations for too many reasons. One is unemployment is still high so the ability to predict cash flows is challenged. The other big reason is that home prices are still onto a flat to downward trajectory. And in order to see a risk transfer into the capital markets you need to predict, one, both of those in a trajectory that is upwards—and we’re not going to have that for some time—which means we’re not going to see investors into the market. And without the ability to transfer risk I do not think we’re going to see growth, at all, and for more than a decade.”