Anthony Meola is currently the CEO of Saxon Mortgage Services
, a subsidiary of Morgan Stanley
[stock MS][/stock]. He joined Morgan Stanley in June of 2007 as its chief operating officer of the US residential lending operations where he is responsible for all aspects of Morgan Stanley’s business strategy and operational execution in the mortgage space for the US. Meola has more than 22 years of experience at the senior management level in the mortgage industry.
For this episode of In This Corner
, Meola says its important for servicers to be quick to adapt in a volatile market and sheds some light on Saxon's push into the subservicing space.
Defaults are still rising. When will the market begin to see this number flattening out and even decreasing? Will it run parallel to unemployment?
LPS Mortgage Monitor data shows a large backlog in delinquent loans and foreclosures at record highs. These inventories will have to work through the system and will have a negative impact on the markets. The new Home Affordable Foreclosure Alternatives (HAFA) program, developed to promote short sales, may have a negative impact in some areas, due to lower than market sales taking place.
Unemployment rates have not seen any major changes that would have a positive impact on the markets. From a total of 384 metropolitan statistical areas (MSAs), 377 are currently characterized as declining markets. Combine MSA default data with declining markets data and we believe inventory will remain high in these MSAs for at least 18 months.
Re-defaults. How much of a concern will these be in the future? The market is still trying to get its modification programs moving at full-speed, but is this effort to modify as many homes as possible as quickly as possible a haunting repeat of the origination frenzy that started the crisis to begin with?
The difference between extension of new credit through a loan origination, and consumer assistance through a loan modification, is significant. The relief offered a consumer from a trial loan modification is relatively immediate. Moreover, the consumer’s payment is determined through well-defined criteria, as well as a standardized net present value (NPV) model. Additionally, through a trial period plan, the consumer’s ability to sustain affordable payments under the modification is clear—early on in the process. All parties are well-served for the period of time payments are made, and alternative solutions can be quickly explored if the loan modification fails.
With your recent move with Ocwen, can you describe Saxon's push into the subservicing space? What is your timeline?
We’ve built a world-class servicing capability, and we’ve demonstrated that we can achieve superior asset performance for our clients and investors. In 2010, we took that knowledge and expertise in execution to the market and, as a result, have been able to attract subservicing arrangements at desirable returns. Our pricing is such that we take an active participation in the savings we create by using preferred loss mitigation strategies, so that when our clients win, we win. This unique approach has led Saxon to more rapid growth.
One way we create capacity for the market is by partnering with other subservicers who do not specialize in distressed or high-risk assets. We subservice to them assets with a lower risk profile, from our portfolio, which allows us the capacity to serve the market.
Saxon is one of the top HAMP performers, and yet even with its participation in a program heavily criticized for the difficulty it causes servicers, how is Saxon growing its business? What adjustments must you as a servicer make?
HAMP is one of many loss mitigation tools that servicers must master in order to maximize portfolio performance for their investors. The complexity and ever-changing dimensions of the program are no different than many servicing requirements—investor strategies that, in today’s world, need to be dynamic. The servicing world has become interactive and requires flexibility and nimbleness—an ability to react and stay current with borrowers’ changing situations.
Saxon remains one of the nation’s best servicers because of our ability to meet the needs of the investor and borrower. We balance the actions we take in a way that maximizes the outcome for both. The use of workflow tools, predictive modeling, and being proactive in the service we provide, are just some of the keys to our success.
In addition to servicing loans for others in subservicing agreements and PSAs, we service assets we own. As investors, we have a unique perspective into what our investors require, and that keeps us keenly aware of the adjustments and changes we must make.
The recent move by the Treasury to write down principal in HAMP has been long sought by troubled borrowers and non-profit companies. How are investors taking this news?
The recent announcement of principal write down remains subject to further Treasury guidance prior to a servicer’s ability to implement the program. Guidance must include a new HAMP waterfall and possibly a revised NPV model. Additionally, the program as announced, will remain voluntary. However, if the NPV is positive after a principal write down, including all incentives, investors will likely consider the alternative.