Fitch Panel Signals More Challenges Ahead for Servicers
At a conference for residential and commercial mortgage backed securities (MBS) hosted by Fitch Ratings, servicers said that volume, financial conditions and staffing were the biggest challenges facing efforts to modify loans. Robert Meachum, executive vice president of Saxon Mortgage Services, said his biggest concern was the rapid changes of the marketplace in part with government intervention. “The government intervention is a wildcard” Meachum said. "It seems like every single week that goes buy, just using HAMP, we get new requirements placed on the servicers, and every time, we have to react to that." The Home Affordable Modification Program (HAMP) provides cap incentives to servicers for the modification of loans in danger of foreclosure. Meachum said interventions like the actions of judiciaries on different state levels requiring face-to-face mediation with borrowers -- like the recent report from a task force in Florida -- puts a pressure on servicers to comply. “You think about the vast amount of borrowers we’re dealing with and we have to go out and do face-to-face mediations with each of these foreclosures? That’s a tremendous amount of work load that’s being put on us,” Meachum said. “We can forecast out staffing models and we can forecast out our financial requirements, but you can't forecast that. ” Saxon outperformed all other servicers participating HAMP on both of the reports released by the US Treasury Department since Aug. 4. Meachum said they were able to ramp up so quickly because of the timing of their acquisition efforts with Morgan Stanley (MS) which required them to reevaluate their processes. They had just implemented their new net-present value model for decisioning and were therefore able to implement a lot of the HAMP requirements. “Compared to our historical processes, this is sort of a mod-in-a-box process so I think we were very able to quickly apply that,” Meachum said. Diane Pendley, managing director of RMBS at Fitch, gave a preview of the ratings agency’s modification report due out in the coming weeks. She said modifications have ramped up and indicated, given the time frame of her data set, they were not just HAMP modifications. “Obviously the majority of these are subprime, but we’re starting to hear more and more that the prime loans are needing this modification because of unemployment or underemployment from one of the two borrowers,” Pendley said. Since the announcement of HAMP in March 2009, the month-to-month modification totals have dropped among the servicers rated by Fitch, because those servicers slowed or halted their own modification processes, Pendley said. The preview also showed re-defaults, or the default on a modified loan, continued to increase on the same numbers seen in the last half of 2008. “And it’s a little concerning that the re-defaults on the prime loans appear, at least at this point of time, to be on line with what you saw on the subprime and Alt-A,” Pendley said. Saxon’s Meachum said that because the trial modifications were given without having to formally gather all of the documentation and put processes in place, they’ve spent this time following up and found that obtaining the origination information is “very, very slow in coming.” “I think the next 30-45 days are going to be very, very telling,” Meachum said. Write to Jon Prior.