Mortgage Firms Struggle to Redo Loans

Discussion in 'Wall St. News' started by ASusilovic, Jul 15, 2009.

  1. Morgan Stanley chief John Mack recently made a new friend, he told shareholders in April -- a Southern woman who had benefited from the big bank's stepped-up efforts to modify loans under a new federal program aimed at keeping borrowers in their homes.

    "I'm now invited -- if I ever visit Memphis, Tennessee -- to drive two hours south to have dinner with her and her family," Mr. Mack said.

    But by some measures, Morgan Stanley's mortgage-loan servicing firm, Saxon Mortgage Services Inc., has a long road to go. An April Credit Suisse AG analysis of how quickly companies have renegotiated loans ranked Saxon last among 18 mortgage-servicing firms. Saxon has modified just 6% of the loans it oversees that originated between 2005 and 2007. By contrast, Litton Loan Servicing, a Goldman Sachs Group Inc. unit, modified 28% of its loans.

    Such firms are at the center of a grand government experiment aimed at halting foreclosures and the collateral damage they cause neighboring homes. New foreclosure notices will total 2.4 million this year, which could trigger price drops in 69.5 million nearby homes, estimates the Center for Responsible Lending, a financial-services research and policy firm. At an average decline of $7,200 a house, that translates to a potential drop of $502 billion in total U.S. property values.

    The government plan, rolled out in February and called the Home Affordable Modification Program, or HAMP, will pay mortgage-servicing firms to modify mortgages and find other ways to keep people in their homes. But the program's sheer scale and the speed with which it was rolled out has created a new set of problems for some of the 25 firms charged with carrying it out.

    A look at Saxon provides a window into the challenges these mortgage servicers now face as they attempt to salvage the loans of three million to four million Americans. Mr. Mack declined to comment through a spokeswoman, but Saxon says that as soon as HAMP launched, it was flooded with requests from borrowers.

    The company, based in Irving, Texas, has hired or expanded contracts with four outside companies to help handle the influx, and it recently added a late shift from 4 p.m. to 11 p.m. to manage the extra work. Even the volume of paperwork at one point grew unwieldy -- an internal audit in mid-May found that Saxon's scanning equipment was overloaded with materials sent in by borrowers, leading to delays and lost documents.

    Staff lacked the training and experience to modify so many sour loans. During the housing boom, Saxon's mortgage-servicing employees did little more than send monthly statements in the mail and track down delinquent borrowers. Like other mortgage servicers, Saxon was essentially the link between borrowers and the investors who owned pools of mortgages. It handled the day-to-day business of collecting payments on behalf of those investors, and when borrowers fell behind, of covering the payments until it could collect. When borrowers defaulted, Saxon would either modify the loans or foreclose.
  2. About Litton

    Great ideas are often developed in times of adversity. During the difficult Texas real estate market of the 1980s, Larry B. Litton, Sr. pioneered an innovative approach to mortgage loan servicing that is recognized today as a national model. Litton's process combines active, hands-on loan servicing with sophisticated computer technology to produce the highest cure rates in the industry for seriously delinquent mortgage loans.

    Litton's successful methods grew out of a program called Houston Proud, which held neighborhood meetings during the height of the Texas real estate crisis to provide distressed homeowners with information about foreclosure alternatives. Houston Proud was credited with preventing thousands of foreclosures as a result of its outreach efforts. Larry B. Litton, Sr. learned a valuable lesson from his experience; he realized that as customers understood their options and became part of the solution, they would work with loan servicers rather than against them and superior cure rates would result.

    Larry B. Litton, Sr. founded Litton Mortgage Servicing Center in 1988 to be a subservicer of problem loans from various mortgage servicers and private investors. The company has evolved to where today, Litton Loan Servicing LP has clearly established itself as one of the premier residential mortgage servicers in the industry as it works to cure problem loans and prevent foreclosures by providing delinquent customers with a full range of structured counseling and support services.

    From the time Litton Loan Servicing LP was founded in 1988, with a small number of employees servicing loans made to Texas homeowners, the primary objective was to enable families to maintain homeownership. Although, the number has grown to over 1,000 employees servicing loans made to homeowners throughout the United States, the primary objective remains the same, and that is "to enable families to maintain homeownership.