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FEATURE SECONDARY MARKET may assist borrowers in making the payments in the short term, but such reductions do not ap- pear to have a lasting impact on a borrower's ability to stay cur- rent on his or her payments over the life of the loan, frequently resulting in another default sce- nario. However, those with the most drastic reductions do show higher signs of success. 03 Reduction of principal increasing borrower equity. Rate reduction combined to lower the payment while simultaneously with principal reduction is a component that can help get borrowers' payments under control. By making the property's debt closer to adjusted market value, principal reduction has the added psychological benefit of giving the borrower the motivation to keep paying. Adding to these three is a fourth factor to consider: 04 Identify the loans that way—let the servicers fast track the loans through foreclosure that can't and are lost causes and then get out of the are not new in the mortgage servicing industry—indeed, they have been utilized by mort- gage servicing providers for more than 30 years. Tools like forbearance agreements, loan modifications, short sales, and deeds in lieu of foreclosures are all programs practiced with shouldn't be rehabilitated. Loss mitigation programs 02 Lowering interest rates The reduction of interest rates to realistic borrower affordability. expertise by industry profes- sionals. Furthermore, servicing systems are sophisticated enough to identify and target the loans that are high risk and have little chance of qualifying for a loss mitigation program (i.e., abandoned, vacant, non-owner occupied, no-income borrowers, insufficient income borrowers, and borrowers who are uncoop- erative and non-compliant). Borrower Rehab B million homeowners who the programs haven't helped or for whom the solutions are arriv- ing too late? The Washington Post reported in April 2011 that the high foreclosure rate has contributed to a shortage of rental housing. It's a paradoxical problem; on one hand, we have a swelling inventory of aban- doned and bank-owned homes, creating liability for the servicers and blight for the neighborhoods; and on the other hand, we have a shortage of housing, especially rental housing, where most of the displaced borrowers are find- ing themselves after losing their homes. Vacant houses are costing ut what is happening to those 6.5 million to 7.5 millions to maintain, depleting resources that could be directed toward helping borrowers. Meanwhile, neighborhoods are suffering from the harm associat- ed with empty homes. Vacancies detrimentally affect the value of neighborhoods due to deferred maintenance and vandalism, compounding the problem for the homeowners who are trying to hang on. Although it does not cite costs of maintaining vacant homes sure inventory and "shadow inventories" are building behind the political and legislative dam, the displaced homeowners are finding it difficult to procure a place to live. They're unable to qualify to buy a home they can actually afford due to the nega- tive impact of a foreclosure on their credit, and consequently, many families are being forced into apartment living. The good news for the apartment rental industry: Business is booming; vacancies are down, and rent prices are up. As reported in the Washington Post, about 26 per- cent of renters—or 10.1 million people—spent more than half their pre-tax household income on rent and utilities in 2009 (ElBoghdady 2011). The bad news for the housing crisis is rent is more than a family would pay for a mortgage. as a benefit, Bank of America announced in March that it is starting a pilot program to test a rental program targeting 1,000 customers on non-GSE loans as an alternative to foreclosure. Bank of America's head of asset management, Ron Sturzenegger, points to "the potential benefits of stabilizing housing prices in the community and curtailing blight" as a reason to test the pilot. Ironically, while the foreclo- Add to the List of Four Solutions a Fifth 05 Use resources to place affordable. Nicholas P. Retsinas, director borrowers in homes that are realistically of Harvard University's Joint Center for Housing Studies, said 9. ElBoghdady, Dina. "Study: Affordable rental housing scarce." Washington Post, April 26, 2011: A12. 10. Schwartz, Nelson D. New York Times. March 22, 2012. http://dealbook.nytimes.com/2012/03/22/bank-of-america-tests-rental-program-as-alternative-to-foreclosure/ 11. Shadow inventory: Properties that are in default or in the lender's REO inventory that are not counted as available for sale. 12. Arditit, Lynn. "Harvard expert offers 3 foreclosure solutions." The Providence Journal, February 22, 2008: F1. THE M REPORT | 77 in 2008, "Provide federal aid to nonprofit groups to purchase foreclosed houses and convert them into affordable rental hous- ing." This approach could work by downsizing the home that a borrower can afford with a pri- vate mortgage while rebuilding credit, or by taking advantage of a rent-to-own (RTO) program that provides an opportunity to have homeownership in the future while the borrower pays off consumer debt and rebuilds credit. What or who is to blame for the mortgage crisis will be argued for years to come, and valid are the points that the practices of rating agen- cies, lenders, and borrowers are major factors contributing to the problem. Lenders certainly share in the blame, as they pushed as many loans through as pos- sible without regard for quality standards. Without account- ability or participation in the losses, mortgage originators cashed in on the fees generated by subprime mortgages and im- mensely incented all involved in the process. Homeowners can be cited for fault for overextending and overspending. With rapidly appreciating real estate prices, homes were being used like ATM machines to cash out eq- uity to buy everything from cars to boats and expensive vacations. Hopefully, our industry has learned from its mistakes, and we are ready to clean it up and move forward. A loss mitigation program that works by putting people in affordable housing while financial rehab is occurring for both the industry and the bor- rowers is a good way to spend the resources, rather than continu- ing down a path that we already have proven is non-effective. 7. Fannie and Freddie suspend all foreclosures and evictions from November 2008 until March 2009. 8. Attorney General: Five of the biggest mortgage servicers signed a deal by 49 state attorneys general for a $25 billion foreclosure settlement. Kim, Susanna. ABC News. abcnews.go.com. February 9, 2012. http://abc- news.go.com/Business/25-billion-mortgage-settlement-step/story?id=15548516. ORIGINATION SERVICING ANALYTICS SECONDARY MARKET