The beginning of September is a mere five days away, but before August closes, I thought it might be good to look back on the month that, by all accounts, was one of the most active in the servicing industry's history.
Sure, historians will probably consider Taylor, Bean & Whitaker's and Colonial Bancgroup's colossal falls from grace as August's defining news story. And President Obama's vote of confidence for Ben Bernanke to continue leading the Fed is, in no way, insignificant to the housing market.
But for the purpose of this blog, I want to focus on those events that most accurately depict this chaotic period in servicing.
Aug. 4 – The Treasury releases its HAMP progress report, saying the federal loan modification plan is "on track to offer assistance to up to 3 to 4 million homeowners over the next three years." The Treasury's assistant secretary for financial institutions, Michael Barr, nonetheless expresses disappointment over the total number of modifications begun – 235,247.
According to the program's Trial Modification Tracker, five shops – Saxon, Aurora, GMAC, JP Morgan Chase and Residential Credit Solutions – started modifications on at least 20% of their estimated eligible 60+ day delinquencies. By comparison, Bank of America, with almost 800,000 60+ day delinquencies, entered trial mods on about 4%.
The average size of the five top-performing servicers' eligible delinquencies was 122,735 loans. Pull JP Morgan Chase from the equation, and the average number of eligible delinquencies among the four remaining shops was 54,890.
The conclusion: Mega-servicers, having accumulated massive portfolios, appear to be making slower progress than their smaller counterparts.
"The smaller banks and servicers are probably a little nimbler," Deloitte & Touche LLP's David Sisko tells Bloomberg. A Treasury official notes that "some of the strongest performers are smaller servicers, but it's not a uniform correlation."
Winners: Saxon Mortgage Services, which led the way, modifying 25% of its eligible delinquencies; Lake National Bank, which modified 100% of its one eligible delinquency.
Losers: Mega-servicers; National City Bank, the latter of which entered trial mods on four of its 37,126 eligible delinquencies.
Aug. 5 – HomEq Servicing joins HAMP. The company, a subsidiary of Barclays, had been a target of ACORN's "Home Wrecker" campaign that began in June.
"With HomEq's announcement that it has joined HAMP, more foreclosures will be averted and fewer families displaced," ACORN CEO Bertha Lewis said in a statement.
Conclusion: ACORN's persistent, but to assume HomEq had no intentions of joining HAMP until ACORN started making noise simply isn't fair.
Aug. 5 – The Associated Press publishes an investigative report titled, "Gov't. mortgage partners sued for abuses." The nation's biggest newswire details the courtroom battles of HAMP servicers in recent years, finding that 30 shops have been sued for violating debt collection laws, 14 servicers have been accused of misleading borrowers about HAMP qualifications and three companies settled federal predatory collection allegations.
The report, as evident in its headline, highlights the connection between taxpayer funds and the coffers belonging to companies accused of abusive practices.
The takeaway: The bailout stigma has inarguably attached itself to servicing, specifically.
Winners: Consumer advocates who want more modifications.
Losers: Servicers. "The biggest playersâ�¦all face litigationâ�¦. But the industry's smaller playersâ�¦face harsher accusations that they systematically abused borrowers," AP business reporter Daniel Wagner wrote.
Aug. 7 – The Federal Financial Institutions Examination Council (FFIEC), which counts the Federal Deposit Insurance Corp., the National Credit Union Association, the Office of Thrift Supervision and the Office of the Comptroller of the Currency among its members, reminds servicers that are working first and second liens on the same property to act in the best interests of investors.
‘A servicer's decision to modify the first-lien mortgage should not be influenced by the potential impact of the modification on the subordinate-lien loan and vice versa,’ the FFIEC instructs.
The conclusion: Servicing is a world filled with conflicts of interest.
Winners: FFIEC member agencies that have essentially, though not necessarily effectively, performed their regulatory duties.
Losers: Servicers that are working first and second liens on the same property.
Aug. 12 – Litton Loan Servicing, Goldman Sachs' shop and another "Home Wrecker" by ACORN's definition, signs a HAMP contract.
The company's CEO, Larry B. Litton, notes that, since March, Litton offered 38,000 modifications to borrowers using "terms in accordance with the broad principles of HAMP."
"In the 12 months prior to the announcement of the Home Affordable Modification Program, we modified more than 44,000 loans, representing about 10% of our loan portfolio," Litton states. Later in the month, Wells Fargo and Citi similarly point out the success of their non-HAMP modification programs.
The conclusion: Everyone's pretty much on board, now.
Winners: ACORN; Litton, for reminding the general public that modifications do exist outside of HAMP.
Aug. 12 – RealtyTrac reports that foreclosure filings (e.g., default notices, scheduled auctions and bank repossessions) hit an all-time high in July. Nevada charted the nation's highest state foreclosure rate, with one in every 56 housing units receiving a filing. California, with the second-highest foreclosure rate, had 108,104 properties receiving a filing in July.
‘Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions," says RealtyTrac CEO James J. Saccacio.
The conclusion: A weakened economy has transplanted unfavorable loan conditions as the primary driver behind foreclosures.
Winners: No one
Aug. 12 – Edmund Brown, California's attorney general, orders 386 ‘mortgage foreclosure consultants’ to register with his office and more than two dozen companies to justify their loan modification claims. In June, Brown told such consultants to either register with his office, post a $100,000 bond and receive a Certificate of Registration, or go out of business.
‘The time for accountability is at hand,’ Brown said at the time of his subsequent order.
The conclusion: The fewer scammers, the better; and California leads the nation in areas other than highest foreclosure filings.
Winners: Struggling California borrowers, servicers
Aug. 19 – A federal judge in New York rules that investors' lawsuit against Countrywide Financial return to the state's Supreme Court rather than be heard in federal court. The suit stems from Countrywide's settlement last year with several state attorneys general in which Countrywide agreed to modify loans for about 400,000 borrowers.
The investors claim Bank of America, Countrywide's parent company, must buy back the loans slated for modification. Bank of America claims the servicer safe-harbor legislation signed into law in May supersedes pooling and servicing agreements.
The conclusion: Servicers and investors will both be watching the case's development very closely.
Winners: Investors; Judge Richard Holwell, who doesn't have to hear the case
Loser: Bank of America
Aug. 20 – Results from the Mortgage Bankers Association's quarterly National Delinquency Survey show that 13.6% of borrowers are at least one payment behind on their mortgage or are in foreclosure. Foreclosures on subprime adjustable-rate mortgages drop but are offset by increases in foreclosure rates on other loan types.
Prime fixed-rate loans accounted for one in three foreclosure starts during the second quarter. The foreclosures-start rate for Federal Housing Administration loans also jumps during the quarter.
"It is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves," says Jay Brinkmann, MBA's chief economist.
The conclusion: What Brinkmann said.
Winners: Subprime ARM investors, kind of
Loser: The economy
Aug. 24 – J.D. Power and Associates releases its 2009 Primary Mortgage Servicer Satisfaction Study, which measures customer satisfaction with servicers' loan administration, billing processes, payment processes and accessibility.
The study shows that borrower satisfaction is higher among customers whose servicer contacts them first. It also finds that 18% of customers who contacted their servicer had difficulty understanding the representative. Among those customers, contact satisfaction declines dramatically.
"We've seen this year that customers were less satisfied with their interaction when calling about loan modifications, most pronounced when customers were contacting over the phone, which suggests insufficient or poor training," says David Lo, director of financial services at J.D. Power and Associates.
The conclusion: Welcome calls and proactive outreach are still important parts of servicing, and employee training may need a second look.
Winners: Regions Financial Corp., BB&T and U.S. Bank, which each received J.D. Power and Associates' highest ratings.
Losers: Servicers that received scores below the industry average; offshore call center operations
Aug. 25 – The Center for Public Integrity – a nonprofit, nonpartisan digital news organization – publishes "Subprime Firms Get Tax Money To Fix Foreclosure Mess." The report says that of the top 25 HAMP participants, "at least 21 were heavily involved in the subprime lending industry."
"The list of HAMP recipients reads like a who's who of major subprime lenders and loan servicers, including financial institutions that have already received hundreds of billions of dollars from the federal government's primary bank bailout program," the report adds.
The Center for Public Integrity reiterates some of the litigation covered by the AP's report and additionally connects servicers with some of the financial crisis' highest-profile actors (e.g., Aurora with Lehman Brothers, Wilshire Credit Corp. with Merrill Lynch and MorEquity with AIG).
The conclusion: Servicers should expect more of the same treatment.
Winners: Center for Public Integrity, whose analysis was picked up by BusinessWeek, BizJournals.com and other business media sites
Losers: The servicers named in the report
– John Clapp, editor, Servicing Management
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