Originators Shifting Personnel to Servicing

MBA (3/11/2008 ) Murray, Michael
As foreclosures and delinquencies increase and originations slow, servicing departments have added personnel who previously worked on the origination side.
Servicers report they are adding more servicing assistants and, in some cases, origination staff has moved to servicing departments, including collections.

For example, Cheryl Lang, president of Houston-based Integrated Mortgage Solutions (IMS), said her company has hired underwriters who have moved to the servicing side of the business and a new sales person, previously a mortgage loan originator, who “transferred into understanding the servicing side very easily.”

At IMS, Lang’s staff handles a variety of collateral protection services for the mortgage servicing industry—including inspections and preservation; hazard claims processing; property repair and loss mitigation.

“People are going from an origination side to the servicing side,” Lang said. “Because resources are so important now, the mindset is—if you have somebody who at least understands the business, you can teach them the technical part of what we do. If they already know what a mortgage is, and they already know what a note is, and they already know what problems are inherent with the crisis that we have right now, the other stuff can be caught.”

Lang said the mortgage environment today, particularly in areas such as Michigan, California and Florida, compare to Houston nearly 20 years ago. Florida tends to historically be more affected by a real estate slowdown and in Naples, Fla., prices have dropped as some commercial construction remains from previously received permits, she said.

Lang said servicers were looking for web site design or other forms of technology because they were not receiving IT resources. “I think it’s just getting to the people and trying to save as many homes as possible and moving on,” she said.

Jack Pence, CMB, vice president and director of strategic alliances at Fiserv, Plantation, Fla., said servicers are looking at technology more now as they face the challenge of handling more situations in loss mitigation and to prevent defaults with the same amount of resources.

"They have more volume than they're staffed to normally handle," Pence said. "I think they're challenged to be able to staff up quickly enough to deal with the increase of volume. They're just out there looking to see if there is a better mousetrap than what [they have] that can help them to deal with this volume effectively in the near term."

“I don’t think the industry feels like this is a permanent condition so it’s unlikely that it’s a place where the industry wants to do this with a lot of fixed assets,” said Jeff Lebowitz, founder of MORTECH LLC, Guilford, Conn. With cuts in mortgage IT departments, capital allocations are moving more toward risk management, underwriting and compliance rather than servicing for loss mitigation and foreclosures, he said.

“Lenders are always primarily interested in production and so they are being forced into this kind of management technology expenditures based on circumstances,” Lebowitz said.

According to the Mortgage Bankers Association's National Delinquency Survey for the 4th Quarter 2007, nearly 20 percent of foreclosures in states such as Florida, California, Nevada and Arizona have been the result of investors purchasing a house or condo in a heated market and trying to flip it into a quick profit.

“They’ve made a bad investment. The value isn’t there, and they have to compete with other people in the neighborhood. They can’t sell the properties as owner-occupied, and they are basically giving up. They can’t rent it for what they originally thought would cover their mortgage payments,” Lang said. “I believe you see a lot of investors just backing off and leaving.”

Lang said investors are now cropping up in urban areas, purchasing “torn-up homes” and becoming “slumlords."

Determining owner-occupied property from investment property is also difficult because of potential fraud against mortgage lenders in the documentation. Lang said mortgage fraud against lenders also attributes to home foreclosures.

“Most of the people who have created these fraudulent loans and have stolen identities are long gone,” Lang said. “You’re not ever going to catch them and that’s kind of sad. We did ourselves a disservice by not requiring [loan] documentation” and taking information from the loan documents at face value.

As IMS entered houses for debris removal—recently deserted either by owner-occupants or investors—the staff found trash cans with loan applications. “Some broker was creating some kind of fraud along the way,” Lang said. “We’re seeing an awful lot of theft. More than likely, it is the occupant that is just taking everything that is not nailed down, such as dishwashers and stoves.”

In some cases, such as track housing, occupants have taken out the cabinetry to sell, and whether it is a suburban community in California or an underdeveloped urban area, the nature of the neighborhood does not necessarily represent the nature of a borrower in foreclosure.

“It is really creating a mess for the insurance company because that is a covered peril,” Lang said. “When we file a claim, it’s paid, but it is a whole different mindset—a whole different type of borrower—that just doesn’t show much pride in ownership.”

As for short sales, Lang said it is more difficult to purchase a home because credit is tighter, making it more difficult for a short sale, while the market is “saturated” with foreclosures.

“Investors are not all that keen on reducing the amount that they were promised to get paid back,” Lang said. “If there is mortgage insurance involved, [the lender can] reduce it by that amount because the mortgage insurance company is going to have to pay either at the end or upfront, so it is best to eliminate that cost apparent with a foreclosure.”

While the home sits in foreclosures, Lang’s staff continues its work to keep properties in good condition by repairing them with insurance proceeds from damage and as the foreclosures happen in urban areas and suburbs, the crime rate increases 2 percent for every five foreclosures.

“We try to keep our lenders as good neighbors,” Lang said.