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Mortgage Servicer Impact On Consumer Credit Debt

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If it’s broke, do not mend it,” seems to reflect the current administrations response to the continued abysmal performance of the large Servicers in implementing programs to keep people in their homes.

Our firm’s analysis of the work-flow processes of the cavalry collections clearly demonstrates”substantial technology and service gaps” that explains why only a very small percentage of homeowners have actually benefited from loan modifications.

In fact, the Amherst Securities Group recently released figures showing that 80% of all nonperforming private-label mortgages have not been modified after 12 months and as of Sept. 30, 2010, that the Fannie Mae servicers had completed only 321,800 modifications including 158,800 restructurings that meet Home Affordable Modification Program (HAMP) specifications out of nearly two million note holders believed to be eligible for loan work-outs. Fannie has 60,500 borrowers in HAMP trials, which represents only 6% of its seriously delinquent loans.

This discussion will focus on specific areas of the Servicer work-flow processes that contribute to the”large support and technology gaps,” in the way in which loan work-outs are initiated and processed.

The Acting FHFA Director Edward J. DeMarco revealed recently on December 2nd that the,”Servicer’s deficiencies undoubtedly reflect strains on a system that is operating beyond capacity and was never designed to handle the volume of nonperforming loans which we’re seeing now.” He concludes that,”they also signify a breakdown in corporate internal controls and the integrity of mortgage servicing and processing”

With the John Burns Real Estate Consulting firm estimating that the”shadow stock” of homes is headed towards 4.7 million foreclosures, it is obvious that Servicers must drastically overhaul their work-flow processes in order to have a fighting chance at creating some head winds against the growing momentum of REO inventories.

Servicers use inadequate methods to contact and engage the borrower in order to evaluate whether a work-out can be accomplished. With so many consumers capitulating due to delinquent mortgage, and unsecured consumer debt such as credit card debt and personal lines of credit, a growing number of homeowners simply do not bother to answer their phones to avoid the stress of dealing with high pressure collection agents.
A vast majority of the Servicer’s infrastructure and staff is consumed by servicing collection calls, chasing consumers that are delinquent and barraging households with multiple phone calls daily that are generated by automatic dialers. To be clear, the purpose of these calls is to collect on delinquent mortgage and credit card debt payments, not to offer a proactive approach in helping the borrower understand his/her options. As Director Demarco has clearly stated, Servicers were never prepared to handle the acceleration of nonperforming loans; but after several years of failure it is now time for the Servicers to embrace some new processes and technologies to better manage, track and automate the loan life-cycle.

Employing a ‘Right Party Contact Model’ that utilizes licensed Field Services Agents that make multiple trips to the home and talk to neighbors in order to make direct contact with the actual borrower is becoming a intregal step in work-flow process. When paid for by the Servicer, a real time financial interview is conducted and the homeowner’s current income and employment information are fed into an Automated Analytics Engine to determine whether a note holder qualifies for a loan modification; if so, a HAMP Package is generated to be printed and hand delivered to the note holder. Upon completion, the HAMP package is then checked over for accuracy and completeness by the Field Service Agent (or processing center) then forwarded directly to the Servicer for final approval. In the current Servicer model so many note holders are simply overlooked as the Servicer possesses no predictable process to ensure the note holder outreach, qualification, delivery, processing of documents and approval for a note holder that would normally receive a completed loan modification if the proper process technologies were in place.

If it is ascertained that the homeowner lacks the sufficient income to meet the basic HAMP qualifications, the borrower must begin to consider his/her other realistic options. Given either eventuality, an aggressive outreach methodology improves contact rates which in turn increase the number of homeowners that will actually attempt and ultimately qualify for a loan modification. In addition, the borrower is more likely to respond positively to other options, such as a short-sale, after an attempt is made by the Field Services Agent to qualify the borrower for a loan modification, even if they do not qualify. The point is that it is the responsibility of the Servicer to contact and engage the consumer which simply is not being done.

Our distressed asset workout program utilizes extensive net present value and waterfall algorithms that can be customized to individual Investor or even program-level specifications, allowing for highly targeted workout programs for every class of distressed assets for the benefit of Investors while also giving the note holder immediate feedback on the likelihood that a work-out can be achieved or whether other options should be pursued such as short-sale to create a dignified exit for the note holder that cannot manage to stay in the home.

Total Debt Matters
Although it is widely accepted that the Servicers have failed to implement loan modifications on any scale that will perform well for Investors of the mortgage notes, when our Field Service Agents make contact with the borrower, in addition to examining the work-out options for the mortgage, they are also exposed to an extensive ‘Soft Chapter 13′ debt settlement, debt relief program that attacks the major sources of consumer debt competing for the cash flow meant to service mortgage debt namely unsecured credit debt, including but not limited to credit card debt, personal lines of credit, business debt and unpaid tax debt. Although the Servicers do not address the’total debt’ picture for each note holder, our debt settlement debtor model has yielded greater secured loan performance by incorporating the entire debt service strategy, a clear departure from the restricted Servicer approach.

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