Demand Intensifies for Experts in Loan Workouts
Lenders are intensifying their efforts to help troubled borrowers, according to a new report issued by the Mortgage Bankers Association (MBA). The group’s research shows that the mortgage industry, facing a total of 384,000 new foreclosures, modified about 54,000 loans and established formal repayment plans with another 183,000 borrowers during the third quarter of 2007. Meanwhile, Countrywide Financial says it helped more than 80,000 borrowers retain their homes last year, and the White House has also formulated a private-sector plan to assist struggling homeowners. The MBA says the trend will intensify in 2008.
In an effort to stem the tide of foreclosures amid the fallout of the subprime meltdown, holders of securitized subprime mortgages are being urged to restructure or workout loans that are delinquent or likely to default. As a result, executive search firm, A.E. Feldman, reports that candidates with expertise in underwriting, restructuring, valuation and workouts in high demand.
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.
There were approximately 13,000 loan modifications and 90,000 repayment plans established for subprime adjustable-rate mortgage (ARM) loans in the third quarter of 2007, according to the MBA. For borrowers with subprime fixed-rated loans, the MAB says loan servicers instituted 15,000 loan modifications and 30,000 repayment plans. The MBA also found that subprime ARM borrowers who already had a repayment plan or loan modification in place but were unable to avoid default anyway accounted for 40% of the subprime ARM foreclosures. ”It is likely that the number of loan modifications for subprime ARMs will continue to grow through the outreach efforts of the industry,” says Jay Brinkmann, MBA’s Vice President of Research and Economics.
Countrywide Financial says it helped more than 80,000 borrowers retain their homes in 2007. The embattled mortgage lender reports that loan modifications accounted for 69% of all home retention efforts, and the firm’s foreclosure prevention efforts grew substantially in the fourth quarter of 2007 - a direct result of increased staffing, outreach and investor support. ”Countrywide is proud of the progress made toward helping our customers sustain homeownership,” said Steve Bailey, senior managing director, Loan Administration at Countrywide. “Home retention efforts in the second half of the year increased 148 percent compared to the first six months, and we anticipate helping even a greater number of borrowers in 2008.”
The White House has also gotten involved. Back in August President Bush outlined a plan to assist struggling homeowners. In response, Treasury Secretary Henry Paulson and Housing and Urban Development (HUD) Secretary Alphonso Jackson assembled a private-sector group called the HOPE NOW Alliance. President Bush announced that representatives of HOPE NOW developed a plan under which as many as 1.2 million homeowners could be eligible for assistance. HOPE NOW is attempting to bring relief to these borrowers through refinancing existing loans into new private mortgages, moving them into an FHASecure loan (FHASecure expands the FHA’s ability to offer refinancing by giving it more flexibility to work with homeowners who have good credit histories), or freezing their current interest rates for five years.
HOPE NOW established a 24-hour toll-free hotline to provide mortgage counseling in multiple languages. The group reports that average daily volume this month is 3,200 calls a day - more than double from the fourth quarter’s level. HOPE NOW says it received 140,000 calls in the fourth quarter of 2007. As a result, the group projects that 84,000 subprime loans were modified in the fourth quarter, up from 28,000 in the previous quarter. HOPE NOW estimated that it assisted 40% of the 950,000 borrowers projected to be delinquent in the second half of 2007. Of that group, 120,000 were helped through permanent loan modifications and 250,000 negotiated repayment plans.
