Rick Seehausen is president and CEO of LenderLive Network, a company that provides domestic business process outsourcing and technology to the financial industry. LenderLive supports the single-family mortgage loan industry with private-label service solutions to originate, process, underwrite and close loans. LenderLive - through one of the top four servicers - has performed a significant portion of HAMP modifications and HARP refinances.
For this episode of In This Corner, Rick discusses the effect of loan modifications on the housing industry's recovery.
HW: How is LenderLive approaching the high volume of eligible borrowers for the Home Affordable Modification Program (HAMP)?
Rick: LenderLive has always relied heavily on its state-of-the-art technology platform to provide highly scalable solutions to our clients in all aspects of business. When HAMP was announced, our flexible technology systems allowed us to quickly respond. In just under three weeks from the initial HAMP announcement, LenderLive had adapted its technology and trained resources to support the HAMP processes. Since then (approximately six months ago) we have been involved in more than 200,000 HAMP modifications and have worked more than 600,000 unique loans on behalf of our servicer clients. This work is all being done domestically in our two facilities in Denver, Colo. and Troy, Mich.
We are also doing some imaging work out of a partner facility in Dallas. From these locations we have demonstrated an ability to hire and train a large staff of skilled human resources. It is the combination of strong management processes over the substantial labor component required to execute HAMP, and the multi-million dollar investment in technology we have made to automate a great deal of the process, that are the keys to our success.
HW: HAMP and Home Affordable Refinance Program (HARP) were designed to keep people in their homes, but are they delaying a true recovery?
Rick: HAMP and HARP require that a borrower to be re-underwritten into an affordable mortgage, which is the first wide-spread program to have this requirement. It is too early to assess the performance levels of these re-underwritten loans until at least six to nine months of experience has occurred. It is our view that, if done correctly, the newly modified loans should perform significantly better under these programs than the previous modification programs. There is a great deal of press about the high recidivism rates on loan modifications. It is very important to understand that these statistics are really applicable to the previous modification programs before HAMP. Most of these older modifications usually did not entail an underwriting of the borrowers’ financial situation to the mortgage obligation and furthermore, the modification itself typically resulted in higher payments for the borrower. HAMP requires the borrower to qualify and results in a lower payment to the borrower, which should yield substantially better results.
HW: Are HAMP and HARP here to stay, or are they just a temporary solution?
Rick: The short answer is, we don’t know. An argument could be made that this type of modification becomes a loss mitigation tool that servicers will use for a long time to come. As the market stabilizes the net present value test, which evaluates the cost of foreclosure against the cost of modification, it should provide proper checks and balances in the utilization of modifications versus foreclosure. However, the greater risk in continuing the modification program long term is moral hazard. None of us wants to create a society where the consequences of being unable to make payments are made into an easy ability to take advantage of a program to lower the payments. Loans need to be made to consumers under the expectation of repayment. Making it too easy to change the underlying repayment assumptions will increase the cost to obtain a loan for all consumers substantially. Higher financing costs will not be good for the economy either.
HW: How is LenderLive helping servicers adjust to the current foreclosure crisis?
Rick: The current environment has placed a tremendous strain on servicers to expand their physical capacity and infrastructure, as well as required servicers to develop specialized technology solutions to support many new processes. Outsourcing specialty servicing functions to a specialty servicer has been common among lenders for years. In this environment, servicers really need a “specialty originator,” since HAMP and HARP require qualification, underwriting and significant documentation to complete. LenderLive has made these areas of the mortgage business its core competency for more than 10 years. We have advanced technology to support the HAMP and HARP processes, and the trained, experienced resources at the ready to support these initiatives.