Wednesday, April 8, 2009

Servicers overloaded on loan modifications

The Wall Street Journal has an article regarding mortgage servicers having trouble finding enough people to handle the surge of defaults. What is clear that the servicers are doing everything possible to get homeowners to take loan modifications over foreclosures. The biggest issue is that most loan modifications are absolutely horrible deals for current homeowners and anyone that can do a lick of math can see that. I think the servicers would be better off hiring people with sales experience instead of servicing experience because these people have the aptitude in convincing people into making economically bad choices. The above picture from the article shows that loan modifications are re-defaulting at a high rate as both the economy and the realization that they are maximizing the overpayment of a depreciation asset are taking over.

Snippets from the article:

Finding the right employees with the right temperaments is among numerous struggles facing mortgage-servicing firms. With millions of loans needing to be considered for modifying, the firms also are finding their computer systems outdated and incapable of processing the data.
At the same time, the mortgage-servicing firms are under pressure to meet the mandate laid out by the Obama administration to help keep people in their homes.
"You've got a situation in the industry where all of the trained, experienced collectors -- the resolution consultants -- anybody who's out there with training, they're hired. They're sopped up," Mr. Koches said. "There is an unprecedented demand. So we've got to go out there and find people who don't have that training background."

1 comment:

HelloKitty said...

I worked in the 'loss mit' aka collections/workout department at a now defunct LARGE local company at the very peak of the last crash in mid 90's.

Back then most people wanted to keep the house and 'catch back up'. However there were still thousands of upside down owners. But they were negative perhaps 30k only typically (in so cal anyway). So lots of people would walk for a measely 30k. Nowadays upside down 300k is probably typcial. or more.

Zero down payment and heloc extraction to upside down have changed the game for loan mods. Now I think borrowers are often playing the 'delay foreclosure game' as long as possible. It beats renting in many cases.

No one realizes what a catastrophe this is. All these foreclosure sales create new comps placing half the street underwater and they will walk in high numbers IMO. Waterfall crash. Not L shaped but stair steps down (at least in home price area).