Residential servicers, a sector that is grappling with a potential tidal wave of loan modifications, are beginning to hire “like crazy” according to Mary Coffin, a senior servicing executive with Wells Fargo Home Mortgage. Ms. Coffin, speaking at SourceMedia’s Loan Modifications Conference in Dallas, noted that new servicing employees working on modifications are receiving four to five weeks of training in order to deal with the volumes they are facing.
“When you think about the number of people being added, and this is one of the most painful subjects for me, our history had always been to train early and often to make sure we were ahead of the default, delinquency and foreclosure forecast,” said the EVP in charge of loan servicing and post-closing for the nation’s second largest player in mortgages. “We would hire people, bring them in and maybe start them in collections, easier calls, and over tenure let them encounter workout situations. We no longer have that advantage in this environment. We are hiring people by the thousands and thousands. It is very painful. The borrower has high anxiety and a lot of fear, complex documents to sign and return to us, and you are hiring people that get four and five weeks of training.”
She said servicers are going much deeper in collecting financial information from the borrower. Ms. Coffin described a transformation of servicers and what has evolved as the foreclosure crisis began and where the company sits today.
“In the old way of doing business, when the borrower first went delinquent, we would start with a repayment program. They don’t work to the point to where we have almost tried to get rid of them. It is a circular process that ultimately ends up with a different solution that needs to be found,” she told conference attendees.
“Today, we’re underwriting the financial condition of the borrower in order to pick the right solution that is sustainable. That is the first big change that has happened for servicers.”
The Wells executive noted there has been confusion regarding documentation under the government’s Home Affordable Modification Program, including re-requesting documents from borrowers and instances of losing documents.
“We are still dealing with pulling documents. We have gone back to the administration and I’d like to thank them. They already streamlined the documentation requirements for the HAMP. If we receive what are called the ‘critical documents’ then we are able to do the underwriting and the decisioning that we don’t turn the customer down if every paper is not signed perfectly. That’s a real plus,” said Ms. Coffin.
“We still have work cut out for us. We have customers where the administration has extended it four to five payments. We have a few borrowers sitting in that situation. We have heavy, heavy lifting to do in the next couple months to pull these customers through.”
Wells is trying to be as innovative as possible, working with external third-party providers, using phone calls, mail, door-knockers, branches, its sales teams, everything possible to help these borrowers get these documents in and finalized.
Wells is seeing short-term modifications as another solution for people who are able to regain employment immediately or who require only a short-term mod. It is taking an aggressive approach to the option ARMs from Wachovia. It is the one area where Ms. Coffin says they are doing principal forgiveness.
“We have lower redefault rates. Our key to these pay-option ARMs, if a customer is able to make a payment, we have to find a way to continue to allow that payment to be able to be made. What we are doing is restructuring the loan looking at net present value. It’s been very effective. Many of these customers need to be bridged from a negative amortization to an interest only. If you took them to a fully amortized product, there’s no way they are going to be able to make it. Over time, they will from an IO, step up, so there’s no payment shock.”
Early on, after analyzing its portfolio, Wells quickly saw that yes, HAMP was going to be a great tool and valuable to use, but it was not going to save 100% of their problems.
“Thirty percent to 40% of our portfolio who would be eligible for HAMP was coming to us for solutions. The remainder did not meet the criteria for eligibility. The biggest one was they were coming to us with DTIs below 31%. So, we also went to work on our in-house modification programs.”
This included the payment-reduction mod and the implementation of a full-quality review so no loan can go to a foreclosure before it actually goes through a quality review test to make sure all opportunities have been reviewed.
“These loans are going through multiple looks before they ever go to the foreclosure sale,” she said.
After the creation of the HAMP program, the volume for Wells jumped to over 40% of borrowers who were current on their mortgage that tried to get modifications.
“I knew from talking to investors, their biggest concern was the moral hazard of this program and people going delinquent to get a mod. The guidelines were not provided on default definitions. We worked to provide consistency.”
Because of all the attention on modifications “we went from a day when borrowers who were truly in need called to say, ‘What can I do?’ and we know what to do. Now we are sorting through hundreds of calls from borrowers who have been educated to some extent. We are still educating them on what you truly have to look like before you can get a modification,” she said.
In the previous post, we saw that second mortgage holder Bank of America was willing to take nothing now, and allow the first lender to foreclose – rather than accept $10,000. Let’s examine the possible reasons why this happened.
1.Banks are stupid – a crass generalization that deserves more depth.
You could speculate that banks/servicers are making faulty policy decisions, but usually where I see ‘stupid’ decisions are from those clerks on the front lines – people who are buried with files and aren’t able to make quick decisions accurately. Some are buried with files and can handle it, others can’t, and if this B of A decision was a mistake, oh well, it’ll probably be absorbed. B of A was the actual lender, not just servicer – on the tax rolls they were the bank that funded the loan, and was the decision-maker, according to the LA.
2.Banks are backstopped by U.S. Government
You could imagine a few conspiracy theories here – that B of A might have some sort of incentive to lose money, but because will have to wait for the book/movie to expose it, we’ll be a little short on specifics today. Let’s add, this wasn’t a Countrywide deal, Bank of America was the lender of record in November, 2007 when this $100,000 second mortgage was funded on top of a $900,000 first mortgage that Empire Mortgage Co. had funded in March 2006 (and likely sold off by now?).
3.B of A has recourse, and will pursue borrower.
Irene mentioned in the previous comments that lenders will have recourse for the duration, and I don’t see them waiving it for short sales – especially on seconds. Let’s be clear about one critical component – there are no reminders to borrowers coming from the realtors about future recourse. NAR, CAR and the local realtor boards have done very little to instruct realtors about the possible future liability of recourse loans. As a result, everyone is just pushing to close a deal, and not many folks are demanding that the lenders waive their recourse. I appreciate any views from the attorneys here, and thanks CA Law for bringing it up.
4. Banks are having a change of heart about their “gentleman’s agreement”.
Rob Dawg mentioned it early on that the big lenders/servicers will likely play nice when it comes to settling these disputes between first and second lenders, because on the next deal the shoe will be on the other foot. Most cases over the last few months have had the first mortgage holder paying the second $5,000 to $10,000 to go away nicely, and this is why the listing agent was mad – it didn’t happen in this case.
Possibility #4 is one we will be following closely, because I don’t expect that a major lender is going to make a statement on CNBC that they are waging all-out war in their race to the exits. It will only be seen by examining individual cases and stringing together a series of events to learn what the lenders/servicers are thinking.
I’m pretty sure about this – they will be firing all their guns at once in 2010, and it may not be that obvious to the casual observers. We’re expecting more NODs to make it to the auction list, more trustee sales executed instead of postponed, and the REO listings to increase slow but steady, all while the powers-that-be are frantically pushing loan mod programs that may look and sound good, but aren’t resolving anything.
The 4 br/3.5 ba, 3,265sf house at 3291 Avenida La Cima in Carlsbad has sat vacant all year, and was being offered as a short sale, listed for $925,000.
The owner bought it new in 2003 for $694,500, and had refinanced at least three times. The latest left her with a $900,000 first mortgage, and a $100,000 second mortgage.
An all-cash offer for $900,000 was tendered, but declined by the bank. The frustrated listing agent has this in the remarks:
Second lien holder Bank of America WILL NOT release their lien unless they receive 5% of the net proceeds that the first receives. The first lien holder generously will only allow $10,000 to the second. B of A will not accept this amount and therefore is forcing foreclosure. HOME FORECLOSED ON 11/12/09.
Today’s opening bid was $739,500, and no takers – so it goes “back to bene”, and the first mortgage holder gets another REO on the books.
Three things appear to be in the works here….
1. Banks are stupid.
2. Servicers are losing patience on short sales, and foreclosing is becoming a primary option.
3. JtR has three people (Jim, Lucy and Richard) who are filming houses that are heading for the court house steps, and building quite a library for their clients!
Nov. 12 (Bloomberg) — U.S. foreclosure filings surpassed 300,000 for an eighth straight month as unemployment made it tougher for homeowners to pay their bills, RealtyTrac, Inc. said.
A total of 332,292 properties received a default or auction notice or were seized by banks in October, up 19 percent from a year earlier, Irvine, California-based RealtyTrac said today. One in every 385 households received a filing. The tally fell 3 percent from September, the third consecutive monthly decline.
“The foreclosure problem is still with us and will keep prices down,” Stephen Miller, chairman of the economics department at the University of Nevada at Las Vegas, said in an interview. “The real issue is we don’t know what inventory banks are holding that they have yet to put on the market.”
Distressed real estate transactions accounted for 30 percent of all home sales in the third quarter as the median price fell 11 percent from a year earlier to $177,900, according to the National Association of Realtors. U.S. unemployment surged to a 26-year high of 10.2 percent in October as payrolls fell by 190,000 workers, the Labor Department said last week.
Housing will reach a bottom by March 2010, with lower- priced properties recovering value more quickly than expensive homes, First American CoreLogic said last month.
“The fundamental forces driving foreclosure activity in this housing downturn — high-risk mortgages, negative equity, and unemployment — continue to loom over any nascent recovery,” James Saccacio, chief executive officer of RealtyTrac, said in the statement. “We continue to see foreclosure activity levels that are substantially higher than a year ago in most states.”
California ranked second, with filings for one in every 156 households. Florida was third, at one in 168, RealtyTrac said. California led in total filings, with 85,420, up 50 percent from a year earlier. Default notices in the most populous state more than doubled and auction notices rose 73 percent, according to RealtyTrac.
One of the best things you can do on Veterans Day is to support those on active duty. Long-timers here will remember our dear friend Aunt Nancy, who runs a website where you can volunteer to send a gift package to the troops for the holidays:
Who in Southern California will benefit from the existing-homeowner’s tax credit? It seems more like window dressing than actual help – the only buyers who could keep or sell their existing home would be those with substantial equity. Keepers need low payments to correspond with rents, and sellers with loads of equity wouldn’t let $6,500 make the decision for them, would they?
Those who’ll get the credit probably would have moved anyway.
From the LA Times:
If you have owned and lived in a home for at least five consecutive years of the last eight years, you could qualify for a $6,500 tax credit, if you buy a new home between now and April 30.
The “five-of-eight” requirement means that this credit could accommodate people who lost their homes in the last year or two to foreclosure or even sold a house and didn’t immediately replace it, said John. W. Roth, senior tax analyst with CCH Inc., a Riverwoods, Ill., publisher of tax information.
Would you have to sell your residence for it to qualify for the $6,500 credit, if you wanted to buy a new one? Not necessarily, Roth said. The home you purchase must become your principal residence, so you would have to move there. But nothing in the law says you cannot keep your existing residence as a second home or rental, he said.
If you do choose to sell your existing residence, you need to pay close attention to how much you earn on that sale, Stretch said. That’s because taxable profits from the sale of your residence will be added to your other earnings to determine whether your adjusted gross income exceeds the allowable thresholds.
This credit also phases out for singles earning more than $125,000 and married couples earning more than $225,000.
On the bright side, some profits from the sale of a personal residence don’t count. That’s because taxpayers are allowed to exclude up to $250,000 per person or $500,000 per couple in profits on the sale of their personal residence from tax, if they lived in that home for two of the last five years, Stretch said. Only profits exceeding those excluded amounts would be included in income, he noted.
Getting muddled? Let’s look at an example to clarify.
John and Sue Smith own a home that they bought for $100,000 in 1965. They’re now retired and want to scale back, selling that home, which is now worth $750,000, and buying a smaller home with the help of the new $6,500 credit.
Their net profit on this sale would be $650,000, but they can exclude $500,000 of that gain from tax, based on existing law. They will have to add the remaining $150,000 capital gain to their adjusted gross income to determine whether they can qualify for the new credit.
If all of their other income adds up to less than $75,000, they have no worries because the $150,000 and $75,000 add up to $225,000 — the beginning of the credit’s phase-out range for married couples. If they earn more, however, they begin to lose their ability to take the credit.
There are other arcane rules relating to profits earned on the sale of a home, so those with substantial profits may want to consult a tax professional before banking on the credit.
“It’s really confusing,” Roth allowed. “It’s as if they took the old law and threw it in a Mixmaster. Some things still apply; others don’t. The time frames are all new. This is going to keep a lot of tax accountants in business for a long time.”
There are 261 single-family homes in Encinitas/south Carlsbad (92024,92009, & 92011) on the auction + REO lists. Here is what they look like on a map, not including NODs:
