PERSON OF THE WEEK: As servicers prepare their systems and staff for the previously announced revisions to the Home Affordable Modification Program (HAMP), Wade Comeaux, president of special servicer Fay Financial, weighs in on the new federal guidelines and what they mean for broader foreclosure prevention activity.
Q: Last month, the Obama administration announced a slew of new foreclosure relief initiatives, including the FHA short-refi program, principal-reduction incentives and temporary assistance for unemployed borrowers. How would you assess the administration's actions? Which aspects do you believe will have the greatest impact in stemming foreclosure levels?
Wade Comeaux: In the spirit of full disclosure, we are not currently signed up as a HAMP servicer, but we often execute modifications meeting all HAMP guidelines. We think the moves are a positive step, and we're pleased to see that some of the administration's actions address gaps we previously identified with HAMP. HAMP was always a solid program for mortgagors with certain characteristics, but did not provide solutions for others. A great example is temporary assistance for unemployed borrowers. This program provides immediate relief to borrowers without requiring a permanent modification that may not be necessary once they return to work. Previous iterations provided no solutions for these mortgagors.
In my opinion, short sales have the greatest potential to stem foreclosure levels. In our experience, the key is to keep borrowers engaged and incented throughout the process so that you bring a fully occupied, non-distressed property to market. If properly executed, the HAFA program should help avoid foreclosure for many Americans.
Q: Do you believe the implementation of the new programs will go more smoothly than HAMP's original rollout?
Comeaux: Unfortunately, I have concerns. While HAMP has always had opportunities for improvement, one of the largest impediments to the program's success has been servicer bandwidth. Often, those responsible for borrower contact are less experienced and have a narrow understanding of the industry, which hinders their ability to efficiently navigate the various foreclosure prevention programs.
The original HAMP was a single-waterfall process. Now, servicers and their employees will have significantly more options to evaluate. Once implemented, HAMP servicers will need to figure out how to ensure they are leading the borrower to the best available option. To do so requires customer-focused individuals with a holistic understanding of the business and sound judgment. Thus far, elongated assessment and execution on individual modifications has plagued the HAMP program. It is difficult for one to see how adding more options, complexity and paperwork will do anything but prolong the process.
Q: The encouragement of principal write-downs has drawn the ire of some and applause from others. Are they a necessary evil to speeding market recovery?
Comeaux: Principal write-downs, in some cases, may be the best alternative for both the investor and the borrower. Deciding when and how much is more of an art than a science. Ultimately, the decision to write down principal needs to balance the goals of the investor and the borrower, and that's not always cut and dry. Borrowers are exponentially more educated than ever before, and many will singularly pursue principal reduction. Servicers must use industry-savvy yet empathetic employees to handle the responsibility for customer contact and ensure the proper decision is made.
Q: Do you believe the new 2MP incentives and the FHA refi program will meaningfully influence talks between first- and second-lien holders?
Comeaux: Absolutely. Junior-lien holders have been one of the largest – if not the largest – barriers to foreclosure avoidance. All junior-lien holders must be willing participants in order to avoid an even larger wave of foreclosures. Many of the latest programs, especially HAFA and 2MP, are addressing the difficulties in getting many junior-lien holders to make reasonable concessions. We feel this was extremely important and should improve the process.
Q: The Home Affordable Foreclosure Alternatives program took full effect last week. How large a role do you see short sales playing in the coming year? How much of the activity will be influenced by HAFA, and what level of short-sale activity do you project will occur outside the federal program?
Comeaux: As previously mentioned, many junior-lien holders have been unreasonably rigid in their demands. We are confident this program will get many of them engaged in the process and expect that the program will be used in a compelling number of short sales in the future. In the past year alone, we've prevented foreclosure on 85% of the loans that were 120+ days past due at boarding, and short sales are an integral part of our foreclosure avoidance strategy. The reason they haven't played a larger role for the industry isn't because of the economics – it's because the process is broken.
HAFA should help hold servicers accountable for managing short-sale negotiations within more reasonable timelines. For example, many lienholders would not provide short-sale terms to the borrower before receiving a bid from a buyer, forcing the mortgagor to navigate the process blindly. HAFA will change this and require servicers to provide pre-approved terms. With that said, modifications will continue to play the larger role, because servicers must evaluate borrowers for HAMP before they can appraise HAFA eligibility.
Q: In your opinion, is the servicing industry in for many more of these huge, drastic program changes, or has the administration finally found the right recipe?
Comeaux: The administration's goal is to help 3 million to 4 million homeowners with these programs. Whether or not there are more changes to come depends on how well HAMP servicers execute against that expectation. If the original program's success was any indication of HAMP servicers' ability to execute, I'd say there is a solid chance we'll see more changes. Despite that possibility, the latest enhancements address many of the more glaring opportunities for improvement.