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Exec Has Loan Mod Compliance in Mind
By Amilda Dymi
National Mortgage News
09/30/2009
Today's two most serious issues especially from the economic perspective are compliance with the vast array of government regulations and requirements servicers need to be aware of when dealing with loan modifications, and what other actions will be taken beyond legislative measures to further lengthen the foreclosure timeline.
"Ours, like everybody's experience, is that not only do you have the legislative arms of federal state and municipal government legislating some aspect of the foreclosure that adds to the timeline and therefore the expense, not only as it relates to the time-value of money, but the expense related to depreciating housing prices - so every delay of foreclosures is very, very costly. We have both the judiciary and the executive law enforcement branches legislating."
State differences and variations in local laws and requirements also play a role in how each and every loan modification is processed.
For instance, you have the sheriff in Cook County in Illinois who refuses to follow through serving a foreclosure notice or eviction, "So from the enforcement side, basically you got them legislating. You got bankruptcy judges that are putting unique and, in my view, sometimes unauthorized requirements.
It goes to the issue of lengthening the foreclosure timelines. Requirements for modification even if the modification is significantly more costly than a nonperforming loan than what you would get if you were to foreclose on a property."
Mr. Daurio will bring these industrywide worries with him to the conference where more than anything he is looking forward to the exchange of opinions, networking and maybe learn about best practices.
"I really don't expect to learn much at the conference, since usually I don't. The reason for my attendance is to meet people. Everybody is there. And that is a lot more convenient than making a trip to the East Coast to meet everybody."
Networking can bring along new business opportunities and partnerships, he says. "I'm an owner-servicer and I buy scratch-and-dent loans so frequently the spectrum of modifications is so broad that we see modifications that it appears there is no clear underwriting for the modified loan."
In the trenches sometimes the value of a loan is determined by what the borrower asked for or by someone's random idea.
He sees a lot of gray areas in the loan modification process - one being trial modifications.
"The challenge I see with trial mods is that it does not say what happens after the trial modification period. For example, you have someone who's entered into a trail period agreement and say to them, 'You're not paying $1,500 but $800 for the next six months.'
"If you make those payments then we'll do something, but it doesn't say what they'll do."
While the goal is to place the borrower into a time-test mode where the lender-servicer will be able to once again evaluate their client's ability to pay the mortgage, before considering a loan modification successful, and sometimes it works.
"Many of the loans that I have bought were modified for just a short period of time, but lenders are completely silent about whether they are 'successful' which shows there's a flaw in the system."
The problem, he says, is that it creates an opportunity for servicers who may be interested in the short-term benefits of a loan modification incentive before getting them off of their books.
Sometimes what makes a difference is the company structure, he says. A company that is both the owner and servicer of a loan has more at stake and faces higher loan risk than a company that simply services the loans. So loan risk and risk mitigation is one favorite topic he intends to inquire about at the conference.