Mortgage servicers still playing catch-up with foreclosure crisis
February 24, 2011
By Steve Brown/The Dallas Morning News

The nine out of 10 people who still pay their home loans on time don’t get a lot of attention these days.

Understandably, it’s the 8.9 percent of Americans with home loans who are behind on their payments who are giving the mortgage business fits.

And industry leaders meeting in North Texas this week weren’t sounding very upbeat about the short-term prospects for the home-lending business.

“Mounting foreclosure inventories are something we are all going to be focused on for the next few years,” Freddie Mac executive vice president Anthony Renzi told mortgage servicers at an industry conference in Grapevine.

The mortgage-servicing business was designed to operate with only a tiny fraction of its customers going into default. Service firms don’t even get paid for handling the loans that are delinquent.

“The traditional servicing model was incapable of keeping up” with the flood of foreclosures and missed payments, Renzi said. “For the last couple of years, we have been working to play catch-up.”

More than 4 million Americans are currently at least one month delinquent in home loan payments, so the industry has a lot of catch-up to play.

And unlike in commercial real estate, where “extend and pretend” has worked out pretty well so far, delaying the fix for troubled homeowners hasn’t helped.

Unemployment crisis

If anything, the challenge is tougher now than a couple of years ago, when subprime mortgages were the biggest problem for both borrowers and lenders.

“The nature of the crisis has changed — we have really moved to an unemployment crisis,” said Darius Kingsley, a deputy chief in the U.S. Treasury Department’s homeownership preservation office.

“It’s very hard to know when people get laid off and need help.”

For an industry that’s the intermediary between borrowers making payments and mortgage investors, the servicing business wasn’t originally styled for a lot of hand-holding and consumer counseling.

“The current servicing compensation system was not set up to handle large volumes of nonperforming loans,” said Edward DeMarco, acting director of the Federal Housing Finance Agency. “While none of us underestimate the difficulties that servicers face, mortgage servicing, especially of delinquent loans, must improve. “

Mortgage leaders are frank in their assessment that the servicing industry is going to have to change and adopt new standards.

“We have a business model that is ill-suited for the challenges we face today,” said John Courson, CEO of the Mortgage Bankers Association, which held this week’s Grapevine conference with more than 2,000 attendees. “It’s pretty clear we are going to have a new paradigm in loan servicing.”

Closer relationships

That means establishing closer relationships with customers before the wheels come off their finances.

And dealing with the industry’s widely publicized shortcomings before others do it for them.

Recent publicity about botched foreclosure processes at some of the big mortgage companies hasn’t helped.

“Foreclosures are going to happen — it’s inevitable,” said Fannie Mae senior vice president Jeffery Hayward. “The challenge is re-establishing that we do foreclosures right.

“It’s going to be a challenge to get that credibility back,” Hayward said. “The number of good stories where we did our job the right way has to start outnumbering the bad stories.”

Courtesy The Dallas Morning News
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