Magazine article Mortgage Banking

Euphemism or Hard Reality, Industry Talks about 'Graceful Exits'

Magazine article Mortgage Banking

Euphemism or Hard Reality, Industry Talks about 'Graceful Exits'

Article excerpt

Two words heard often at the Mortgage Bankers Association's (MBA) National Mortgage Servicing Conference in San Diego in February were "graceful exit." As government loan-modification efforts such as the Home Affordable Modification Program (HAMP) are generally considered to have fallen short of initial aspirations, more talk is being heard about borrowers leaving their homes and mortgage obligations rather than attempting to get their loan terms reduced.

"We have to get the word out that there is a certain percentage of people for whom homeownership is not an option anymore," conceded Alanna Brown-Scott, director, government programs and new initiatives, for Fannie Mae's National Servicing Organization in Washington, D.C. Those people "need to find a way out, and that's the concept of a 'graceful exit' and not having to foreclose on them. Working with them is a big focus [for us] going forward," Brown-Scott said.

Another MBA National Mortgage Servicing Conference speaker, Eric Schuppenhauer, senior vice president with Fannie Mae's National Servicing Organization, said, "It's incumbent [on us] to find liquidation--a graceful exit for borrowers. The options are at a final stage and rental capabilities will be instrumental as we move into 2010. We're hopeful that a lot [of borrowers] will be able to have a friendly exit [when] all tools have to be used," said Schuppenhauer, mentioning that in its borrower-contact efforts, Fannie has "used door-knocking firms [and] component servicers, and thank God we did. It's absolutely instrumental that we pull out everything in the tool kit."

Following on that theme, Scott Holzmeister, senior vice president based in the Fort Mill, South Carolina, office of Des Moines, Iowa--based Wells Fargo Home Mortgage, told a standing-room-only MBA servicing conference audience: "If a borrower's not working, then the servicer has to assess whether to continue extending [forbearance]. The climate today is 'extend, extend, extend.' But modifications are here to create affordable payments; they're not there to build equity in your home."

Holzmeister noted that with modification efforts, "there's a lot of back-end debt management [occurring], and it takes a while to work through that. The leverage [debt] that's out there today is scary. It may be so high [that] a mod will not work." Then, asking a rhetorical question of the assemblage, Holzmeister said: "Is there a steadfast rule how to proceed? No. In loss mit, you have to apply expert judgment and dive deeper than ever before using a lot of the same tools, but at a deeper level. Outside of rate, term, forbearance and forgiveness, there's not much more we can do--but you have to structure [any deal] to fit a customer's needs and abilities."

Regarding borrower responsiveness, the Wells Fargo executive offered this rule of thumb: "The sweet spot is that 60-TO-90 [-day] bucket. At 30 days, they're not sure that they're really broke. At 60 to 90 [days], it starts to hit them and they move. At 120 [days], they start to shut down"--that is, become non-communicative, he said.

Echoing that assessment, Richard Cimino, chief executive officer of iServe Servicing Inc., Irving, Texas, predicted that "there is going to be a large increase in REO [real estate--owned] inventory this year, [with] short sales [being] the exit strategy of some lenders, while others are going to an REO scenario. The 'elephant in the room is that these people can't stay in these houses," he said.

Colleen Hernandez, president and chief executive officer, Homeownership Preservation Foundation (HPF), Minneapolis, calls joblessness a "phenomenon" insofar as seeing "the newly middle and upper class unemployed [who] are very slow to catch up to their new lives; slow to apply for [unemployment] benefits or take a job that may not pay as much as their last job; and slow to shed the trappings of their former life that they can no longer afford, with the clock ticking. …

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