Founder, president and CEO of home retention services provider HEART Financial Services, Gerald Alt, opened his statements at the 6th annual Texas Mortgage Bankers Association (TMBA) Southern States Servicing Conference, with a joke. “What’s the difference between a lightbulb and a HAMP mod?” he asked the attendees of a session over imminent default. “You can unscrew a lightbulb.” The joke earned a few chuckles throughout the ballroom-style conference room at the Gaylord Texan Resort in Grapevine. The punchline spoke to the heart of key issues facing mortgage servicers participating in the Home Affordable Modification Program (HAMP). When HAMP was created a year ago, Alt noted, the Treasury Department identified 4-7m borrowers that might qualify for mortgage help. Considering continued low house values and high un- and under-employment, Alt said “let’s double that number.” Despite the overwhelming volume of troubled borrowers, Alt noted HAMP requirements leave many borrowers behind, particularly those with second liens or investment homes, as well as those that are not yet delinquent. And servicers are not equipped to handle the front-end outreach required to identify borrowers at risk of imminent default, and offer the assistance necessary to qualify them for HAMP. “Every mortgage servicing platform was not designed with today’s economy in mind,” Alt said, adding that platforms were largely created as payment collectors and not borrower outreach services. Compounding the challenges facing HAMP servicers are the varying definitions of “imminent default,” according to the government-sponsored enterprises (GSEs). The definitions range in terms of stage of delinquency, cash reserves and additional debt obligations. HAMP servicers are also faced with the challenge of “distressed” borrowers that are not yet delinquent — and therefore do not qualify for HAMP. For instance, Alt said, a borrower can “raid” his or her 401k, retirement funds and savings in order to remain current on mortgage payments. By doing so, the borrower risks bankruptcy for the sake of remaining current on mortgage payments, Alt said. To the servicer, as long as the borrower remains current, the evidence of distress is unclear until cash reserves run out and the borrower can no longer pay. And in other circumstances where borrowers are significantly underwater, owing more on their mortgages than their homes are worth, servicers cannot anticipate the “strategic default” mentality, when a borrower chooses to walk away from an underwater mortgage obligation. “I was raised to think I have an obligation to pay,” Alt said. “Unfortunately, many people don’t learn that from their parents.” There are some analytics services out there that attempt to help servicers anticipate the risk of imminent default, Alt said. But in the case of many borrowers who simply do not pick up the phone and contact their servicers, “they don’t want help,” he said. Read more on the way servicers are adapting infrastructure and technology to meet the wave of distressed assets in HAMP in an upcoming issue of HousingWire magazine. Write to Diana Golobay.
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