Opportunities Exist for Experts in Loan Workouts
More than one million homeowners facing possible foreclosure have received loan workouts and been able to remain in their homes since last July, according to a new study released by, industry alliance HOPE NOW. Moreover, HOPE NOW just last month agreed to adopt guidelines for a 30-day “pause” in foreclosure proceedings to help struggling homeowners modify their mortgage terms. “We are pleased with this progress and we will continue to focus vigorously on reaching homeowners at-risk in order to avoid foreclosure,” says HOPE NOW’s Executive Director, Faith Schwartz.
During the housing boom, many borrowers took out loans assuming they would be able to refinance and extract home equity. But as home prices continue to fall, about one-fifth of subprime loans originated in 2006 are greater than the value of the home, reports Reuters citing Lehman Brothers research. Now, as pressure mounts to ease the housing crisis, holders of securitized subprime mortgages are being urged to restructure or workout loans that are delinquent or likely to default. The trend is creating a wealth of opportunities for qualified professionals. Executive search firm, A.E. Feldman, says demand is growing for candidates with expertise in underwriting, restructuring, valuation and loan workouts.
Back in October, Treasury Secretary, Henry Paulson, and Housing and Urban Development (HUD) Secretary, Alphonso Jackson, assembled a private-sector group called the HOPE NOW Alliance. Members of the Alliance include Bank of America, Citigroup, Washington Mutual, and Wells Fargo. The group is attempting to bring relief to borrowers facing foreclosure by working to refinance existing loans into new private mortgages, moving borrowers into FHASecure loans (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.
A new study conducted by Hope Now found that roughly 1,035,000 homeowners have received workouts since July 2007- three times that of foreclosure sales. This includes 758,000 repayment plans initiated and 278,000 loan modifications.
The study also shows that loan modifications made up nearly 50% of subprime loan workouts in January - a sharp rise from 35% in the fourth quarter and 19% in the third quarter. HOPE NOW also reports that loan modifications increased 16% between January and December.
Critics of HOPE NOW however, suggest the group isn’t doing enough to stem the tide of foreclosures. The Wall Street Journal reports that Sen. Chris Dodd (D., Conn.), Chairman of the Banking Committee, said that HOPE NOW isn’t adequate to cope with the growing problem. The WSJ notes that Sen. Dodd is the sponsor of a legislative proposal that would target billions of federal dollars at the housing market.
The WSJ quotes Dodd in a written statement, “The Treasury’s efforts are certainly one piece of the puzzle but, frankly, Hope Now does not have the resources or capacity to deal with the sheer size of the problem that has millions of Americans in financial dire straits. It is hard to imagine that the same administration whose oversight — or lack thereof — led us into the mortgage crisis will be able to devise a plan strong enough to pull us out of it.”
The Journal says Paulson is pressing the mortgage industry to cast as wide a net as possible in arranging loan workouts, but shows no signs of budging from his opposition to anything resembling a government bailout.
The WSJ quotes Paulson as saying, “Most of the proposals I’ve seen would do more harm than good — bail out investors, lenders or speculators who, instead of getting a free pass, should be accountable for the risks they took. I believe our efforts are best focused on helping homeowners who want to stay in their homes.”
