Servicers of Securitized Loans Seek to Round Out Complex Loan Workout Teams
The number of homebuilders and subprime mortgage lenders seeking loan payment and property obligation relief has increased over the past several months, according to legal experts. In an effort to stem the tide of foreclosures amid the subprime fallout, federal and state banking regulators have urged holders of securitized subprime mortgages to try to restructure or workout loans that are delinquent or likely to default. Executive recruiting firm, A.E. Feldman reports that the trend has put credit risk professionals as well as bankruptcy and transaction lawyers in the spotlight as servicers of securitized loans seek to round out complex loan workout teams.
Guidance issued recently by the Federal Reserve, Federal Deposit Insurance Corporation calls upon investment banks and other financial services firms that have purchased securitized mortgages to reach out to borrowers at risk of default in an effort to restructure, or workout loans. The move by federal regulators is intended to help both borrowers and lenders, as home foreclosure is seen as more costly than restructuring loans in the long term.
A loan workout involves measures taken by a lender to resolve the issue of delinquent loan payments. Workout teams identify problem loans in a due diligence process, including account receivables assessment, workout solutions that could fix the problem loan. They seek to provide borrowers with alternatives to foreclosure or bankruptcy, such as rescheduling loan payments into lower installments over a longer period of time.
The Mortgage Bankers Association recently reported that 5.1% of mortgage loans were delinquent in the second quarter. Moreover, the number of homes that entered the foreclosure process rose to a record on a seasonally adjusted basis. In response to the rise in mortgage delinquencies, servicers are bolstering their workout staff, says Doug Duncan, Chief Economist for the Mortgage Bankers Association. He adds, however, that developing workouts in areas where borrowers owe more than the home is worth complicates matters.
Nevertheless, attorneys general and banking regulators from 10 states have also formed a task force aimed at persuading mortgage servicing companies and investors in mortgage-backed securities to increase the number of troubled subprime loans they restructure to reduce the number of foreclosures, according to the Wall Street Journal.
Led by Iowa Attorney General Thomas Miller, the WSJ reports the task force has invited a dozen of the nation’s largest subprime mortgage-servicing companies to convene later this month in Chicago. The group plans to prompt servicers to find ways to modify an increasing number of subprime loans and create more long-term solutions for distressed borrowers, such as lowering the borrower’s mortgage interest rate.
A.E. Feldman says the distressed housing market has sparked growing demand for credit professionals with experience in cash flow analysis and default risk evaluation. Bankruptcy, litigation and transaction lawyers with expertise in asset searches, settlement, refinancing and restructuring are also in demand as servicers of securitized debt form multifaceted workout teams.
