Any Easy Answers? Not So Far

March 05, 2010

Any Easy Answers? Not So Far

With the housing market showing continuing and unwelcome weakness as the effects of the home-buyer tax credit flush out of the system, it may be that lenders and others are slowly but finally coming around to recognizing that the current approach to failing loans and underwater borrowers may not be enough to lift the heavy load of unsold or unsellable properties off the market.

Mortgage Technology Magazine had a March 4 online article that covered the chatter at the Mortgage Bankers Association annual Servicing Conference held recently.  Summarizing the conference, MTM editor Anthony Garritano wrote that

At the Mortgage Bankers Association National Servicing Conference and Expo here, attendees were very interested in how short sales can be more automated and technology vendors were ready to deliver solutions. The same way they were ready to automate loan mods last year. However, 54% of respondents say industry recovery will take more then short sales and loan mods.

The Making Home Affordable program has been expanded to include new features to help beleagured borrowers with short sales, the article notes, and this may move more lenders and borrowers down that path.  But he also notes that “many if not most financial institutions are not adequately set up to approve short sales in a timely fashion, leading to a very low success rate for short sales to date.”

A conference participant, surveying the very modest success rate of the HAMP loan mod program, said 

“The combination of loan modifications and short sales will not be enough to lead the industry into recovery,” answered Greg Hebner, president of MOS Group. “While the current efforts to modify existing loans and streamline short sale transactions will likely provide a level of support for the residential mortgage market, these measures are only slowing down the inevitable correction that’s needed in current property values and their outstanding mortgage amounts. With these factors combined with what I believe will be a long, slow recovery in the general employment market, I foresee a much longer road to recovery, particularly when we consider the volume of problem loans that have yet to be uncovered and addressed, and the continued fundamental weaknesses in nearly all core housing drivers.”

Another opined that, 

“There just is no single solution set — whether it’s a combination of loan mods and short sales or outright foreclosures — that will resolve the current crisis,” concluded Lee Howlett, president of ISGN’s Servicing Practice. “We do know that the status quo is unacceptable, and is leaving borrowers locked into ‘zombie loans’ where they can never recover into a positive equity position in their lifetimes. This will only exacerbate the moral hazard risk and growing propensity for strategic default. The real answer is a cascade of options that create a best fit for the borrower and lender with each acknowledging the shared nature of the problem. In a tactical sense, this means more effort must be applied to the communication of all available options, much like the industry would do in the origination cycle. If we can reset the underlying loan based on re-underwriting current collateral and credit conditions, then we can identify the gap between the new and original loan and begin a dialogue where each party can accept responsibility through such tools as principal forgiveness, shared future equity, consensual short sales, sale-lease backs, and the like. The key is for both parties to acknowledge they are partners in resolving the crisis rather than adversaries.”