Servicers at the Mortgage Bankers Association (MBA) National Mortgage Servicing Conference, going on this week in San Diego, are looking toward a changing compliance environment as federal modification programs evolve. The overall sentiment at the conference, despite regulatory challenges and what several participants called “overwhelming inventory,” was positive this year. Rich Rollins, CEO of Infusion Technologies, told HousingWire the general mood is one of excitement, opposed to last year when “everyone’s head was down.” The significant volume of inventory, rather than bearing negative implications for servicers, now represents opportunity, he said. “Revitalization is good for the industry,” he said. A key challenge facing the servicing industry, according to Rollins, is the need to get the necessary technology in place to handle this inventory. Grace Brasington, executive vice president of strategic consulting services at Lender Processing Services (LPS), said putting the necessary people and technology in place can get expensive. The cost to servicers is rising as the incentives of the administration’s Home Affordable Modification Program (HAMP) fail to catch up, she said. The incentives that are being provided in HAMP don’t equal the cost of technology and resources. “[HAMP] is not a money-making proposition,” Brasington said at a press conference today. Other participants at the conference echo similar shortfalls present in HAMP. Steven Horne, president of Wingspan Portfolio Advisors, said there is a “fundamental misalignment of incentives” in federal modification plans. Gerald Alt, president and CEO of HEART Financial Services noted a “missing component” from most outreach programs, which aim to fix the housing problem without fixing the homeowner’s situation. Both un- and under-employment issues continue to pressure borrowers, for example. “Some people bought too much loan,” Alt said. Another conference participant said HAMP itself did not fail. Instead, the administration promised a solution, when “not everyone deserves a solution.” Brasington noted that “not everybody can be saved,” and servicers must sometimes consider “other options” like foreclosure auction, short sales and deeds-in-lieu (DIL) of foreclosure. Shelley Leonard, senior vice president of consumer lending strategy noted rising delinquency among home equity lines of credit (HELOCs) drives escalating charge-offs. Home equity lending flew under the radar for a long time, but more attention is being paid now that he performance of these loans affect the banks. There is and increased focus on the way second liens impact modification of first liens, particularly through HAMP. HAMP for second liens — “2MP” — was released last year and so far only one servicer, Bank of America (BAC) signed up, although other banks are voluntarily modifying second liens. For home equity lenders, the cost of the servicing process is rising. The technology in place does not meet their needs, and they’re struggling. More than 35% of HELOCs are now in a first lien position and can pursue alternatives like short sales and deeds-in-lieu of foreclosure. “The pool of problem loans continues to grow and mutate,” said Ted Jadlos, president and managing director of LPS Applied Analytics. New problem loans exceed modifications and trials from January 2009 through January 2010, Jadlos found. In January 2010, 2.9 loans deteriorated for every 1 that improved. As of January 2010, 2.9m loans were 90+ days delinquent at an average 272 days delinquent, opposed to a monthly average of 1m loans an average 204 days delinquent in the first half of 2008. Foreclosure moratoria are not simply “tapping on the brakes” in the foreclosure process — Jadlos said they are as effective as tapping on the brakes on an icy road. “We do not have a foreclosure problem in this country,” he said. “We have a problem of people not paying their bills.” He said between 20 and 50% of HAMP mods will eventually fail. But even putting borrowers in a trial HAMP mod is challenging. There is pressure on servicers that are not processing paperwork, partly due to the fact borrowers do not turn in paperwork. Write to Diana Golobay. The author holds no relevant investments