Big banks pushed to out­source mort­gages

The Pak Banker - - FRONT PAGE -

In the wake of the fi­nan­cial cri­sis and still in the midst of the fore­clo­sure mess, the Con­sumer Fi­nan­cial Pro­tec­tion Bureau an­nounced new rules for mort­gage ser­vicers de­signed to pro­tect bor­row­ers and get them faster, more ef­fec­tive and in­for­ma­tive ser­vice.

The pro­posed changes by the CFPB would re­quire ser­vicers to con­sider ap­pli­ca­tions for help from trou­bled bor­row­ers within 30 days of re­ceiv­ing them. Mean­while, ser­vicers would not be al­lowed to pro­ceed with a fore­clo­sure un­til the de­ci­sion on a po­ten­tial mod­i­fi­ca­tion has been made. The new rules would ap­ply to all mort­gage ser­vicers, not just the na­tion's five largest banks that ear­lier this year agreed to a $25 bil­lion set­tle­ment in the wake of the "robo-sign­ing" pa­per­work scan­dal.The new guide­lines present new chal­lenges to mort­gage ser­vicers - es­pe­cially big banks al­ready over­whelmed with delin­quent loans.

"There's a fi­nite amount of ca­pac­ity in the ser­vic­ing en­ter­prise to­day, and the sys­tem by de­sign was never set up to with­stand these rates of delin­quency, these high rates of fore­clo­sure for an ex­tended and pro­tracted pe­riod of time which is where we're at right now," said Ed­ward Del­gado, COO of Wing­span Port­fo­lio Ad­vi­sors, a Texas-based spe­cialty ser­vicer. That is why many in­sti­tu­tions are in­creas­ingly farm­ing out ser­vic­ing, or di­rectly selling the loans to so-called spe­cialty ser­vicers. These en­ti­ties, which num­ber about two dozen, of­ten have more ex­pe­ri­ence and re­sources to deal with trou­bled loans.

De­spite im­prove­ments in the over­all mort­gage mar­kets, 5.8 mil­lion loans - or 11.9 per­cent of all residential U.S. mort­gages - were ei­ther delin­quent or in the fore­clo­sure process at the end of June, ac­cord­ing to Mort­gage Bankers As­so­ci­a­tion data. Mort­gage delin­quen­cies in­creased in the sec­ond quar­ter of this year, re­vers­ing a trend of fairly steady drops in the rate.

The bureau's new pol­icy "am­pli­fies our role as a strate­gic part­ner in the preven­tion of fore­clo­sures for the most part, by en­hanc­ing our out­reach to home­own­ers and work­ing closely with the banks to make con­tact," said Del­gado. He said his com­pany works with smaller pools of trou­bled loans and can there­fore con­duct con­sumer out­reach more ef­fec­tively, even go door-to-door.

Just last week Ci­tiMort­gage (C) an­nounced it is selling $158 mil­lion worth of mort­gages to spe­cial ser­vicer Car­ring­ton Cap­i­tal, which will con­duct a deed-for-lease pro­gram. That's where trou­bled bor­row­ers turn over own­er­ship of the home to Car­ring­ton and then can rent the home back if they choose, sidestep­ping a more costly and credit-crush­ing fore­clo­sure.

"As a fi­nan­cial in­sti­tu­tion, man­ag­ing a pro­gram of this na­ture is not within our area of ex­per­tise, so we joined with Car­ring­ton, one of the best prop­erty man­age­ment com­pa­nies in the coun­try, to help make this pro­gram work," said San­jiv Das, CEO of Ci­tiMort­gage in a re­lease.

In­sid­ers at Car­ring­ton said they ex­pect to see more deals like Citi's, say­ing fed­eral reg­u­la­tors are ac­tu­ally push­ing larger banks to off­load bad loans. The larger firms sim­ply don't have the ca­pac­ity to han­dle the large vol­ume of delin­quent loans, made abun­dantly clear in hun­dreds of sto­ries from frus­trated bor­row­ers who face fore­clo­sure.

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