July 2012

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FEATURE SERVICING Shaky Systems Lead to Single Points T from the housing crisis meant that banks were caught off- guard, lacking in the manpower needed to address the mountain of mortgage mess. Oftentimes, the institutional confusion led to unsound practices related to mortgage servicing and foreclo- sure processing. For example, one bank representative might tell a struggling borrower that he or she had to miss payments to qualify for mortgage assis- tance, but then another person at the bank would pursue foreclosure when the payments were missed. Dual-tracking oc- curs when servicers continue to pursue foreclosure during the loan modification process. "Whoever answers the phone he sheer volume of dis- tressed loans resulting portfolios are large-balance, low- unit counts so it's efficient to have relationship people or single point of contact versus the call center environment for the residential servicers like the 1-800 number you'd call for your credit card company or even BellSouth." In mid-March, nearly a year after the OCC's enforcement orders, Morris Morgan, deputy comptroller for large bank super- vision, testified before the House against the big-time backdrop that is the National Mortgage Settlement, an agreement an- nounced in February between 49 state attorneys general, the feder- al government, and the country's five largest loan servicers—Ally/ GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo—that will provide $25 billion in relief to distressed bor- rowers and the government. Of course, these moves come unsound mortgage practices in the past five years, the residen- tial servicing sector has been harnessed with even more regulations. Also, both the bor- rower and court system are more refined in the commercial sector versus the residential one. "You have less sophisticated And given the fraud and borrowers, the dollars at risk in any particular loan are not as great, and then you have the regulatory and compliance overlays that you don't have to worry about on the commercial side," Levine added. From Learning Curve to Market Move? P [at your bank] is who you talk to and [he or she] might not be that efficient or proficient with what you're calling about," Levine said. "Especially on the default and workout side, they felt a lot of the borrower frustration. You're already in a workout stretch, you're in a pre-foreclosure effort, and you keep getting passed from one counselor to another. Very frustrating and that's where things fell through the cracks." As a result, in April 2011 the Office of the Comptroller of the Currency (OCC) announced "for- mal enforcement actions" against eight national bank mortgage servicers and two third-party ser- vicer providers for these and other deleterious practices. The eight servicers were Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. Of particu- lar emphasis by the OCC was improving communications with distressed borrowers. "So regulators are imposing this single-point-of-contact ap- proach for distressed or workout loans, which has been the norm for commercial special servic- ing," Levine said. "Commercial Committee on Oversight and Government Reform that of the 121,725 requests for review forms that had been completed and re- turned by borrowers, 87 percent involved modification issues. He also detailed the plans submit- ted by the servicers to correct deficiencies in mortgage servic- ing, which includes "an easily accessible and reliable single point of contact established for each borrower throughout loan modification and foreclosure pro- cesses" among many other efforts designed to improve mortgagee to mortgagor communications. "As a result of these actions, Lost in Translation N applicable to the residential side. With commercial loans, there are not as many of the licensing and compliance requirements because the financial institutions are not dealing with consumers. "Commercial servicers can be a ot everything in commer- cial mortgage servicing is little more aggressive and creative in their structure if they don't have to worry about the consumer protection laws, more than 4 million borrowers involved in the foreclosure pro- cess in 2009 and 2010 have the opportunity to receive free, inde- pendent reviews of their cases," Morgan said in his concluding remarks to the House committee. the commercial world, the finan- cial focus is what drives the rules of decision-making. In residential, yes, you're now in this high-touch, single-point-of-contact environ- ment, but you have to weigh not only what is the best financial decision, but what's also the regu- latory/compliance decision." " Levine said. "In are beginning to bear fruit. Core- Logic reported in May that the 90-plus-day serious delinquency rate in March fell to 7 percent, the lowest rate since July 2009 and representing a "significant" reduction of 750,000 borrow- ers. Although the foreclosure rate remained steady, CoreLogic's Mark Fleming added "there is good news on the foreclosure front as an increasing number of loans in foreclosure are resolved by means other than the actual completion of foreclosure." In a very positive report, Sam Khater of the analytics and services firm noted that in March the supply of unsold homes fell to 6.3 months, the lowest level in five years. "The drop-off in REO sales over the last year occurred thanks to the rise in alternatives to foreclosure over the last 18 to 24 months, erhaps commercial lessons for the residential servicing sector dynamic environment and we're seeing more collaboration between lenders, servicers, and regula- tors, "We continue to be in a pretty " he added. historical silos are starting to come down. By and large, the commer- cial side of the real estate economy has weathered the defaults . . . Are there lessons to be learned? For sure. I think it probably goes on both sides of the house." " Levine said. "Some of the THE M REPORT | 55 ORIGINATION SERVICING ANALYTICS SECONDARY MARKET

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