Investors, seeking mortgage healing

Reuters’ Al Yoon penned a story Tuesday that does a great job of bringing together the idea of “high touch” servicing that we’ve been covering here at Housing Wire. (In fact, I’m beginning to wonder if HW invented the term — we were the very first to coin it, and now it’s being used everywhere. Which, of course, gives us at least something in common with the inimitable Stephen Colbert and his now-infamous coining of “truthiness.”) Anyway, back to the special servicing coverage at Reuters: Yoon notes that investors are increasingly losing patience, not to mention confidence, with more traditional servicing methods:

After a year of crisis, servicers are increasing the number of “high-touch” loss mitigation staffers who can underwrite new loans for financially stretched customers and haggle with buyers of homes in foreclosure. But investors say they are still finding deficiencies due to backups of onerous work, skyrocketing costs and a lack of incentive. “Some servicers were not even picking up the phone saying ‘are you going to pay this month?’,” said Sadie Gurley, a managing director at Marathon Asset Management in New York. Disillusioned, investors are looking for help or simply taking their business elsewhere.

I wish management at some of the nation’s special servicers could have heard the remarks made in the hallways at the recent Secondary Marketing show in Boston — “they don’t get us,” “seriously, do any of them invest in loss mit beyond a call center in India?” and “it can’t be that hard for someone to service the loans the way we want them done.” Each of those remarks came from managers of mid to large hedge funds, underscoring that the issue isn’t as much one of capacity as it is philosophy. Yoon begins to get at that issue, noting the cost differential of a commitment to loss mitigation:

For example, on the cost front, loss mitigation specialists may charge upward of $60,000 a year versus $25,000-$30,000 for a person who only makes initial contact with borrowers inside a 30-day late period, said Rick Smith, chief executive officer of Marathon-financed Marix Servicing LLC in Phoenix, Arizona.

Most servicers, if you don’t know, work on anywhere from 25-50 basis points to service a pool of loans. Which means keeping costs low help push bps into the bottom line, although as Rick Smith notes in the above, it also incents some servicers to stay thin where it matters most for troubled borrowers. What I haven’t seen evidence of yet is whether investors will agree to higher basis points in a servicing fee if they can get a customized solution that fits their particular portfolio; any servicer able to pull that off would likely stand to gain a large share of an increasingly disjointed market.

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