According to an April Credit Suisse Group analysis of the home loan modification performance by mortgage servicers, the winner is Litton Loan Servicing, a Goldman Sachs Group Inc. unit, while the worst of the group was Saxon Mortgage Services, a division of Morgan Stanley. According to the study, Litton modified 28% of the mortgages it oversees that originated between 2005 and 2007. Saxon modified less than a quarter of Litton’s number at 6%.
These loan servicers are the focus of the Obama Administration’s frustration due to the slow rollout of the Home Affordable Modification Program (HAMP) since its initiation in March. Adding to that frustration is that the slow rollout of loan modifications under HAMP guidelines has occurred while foreclosures continue to increase at a record breaking pace. Estimated to hit 2.4 million by yearend just two months ago, foreclosure estimates for the year are now being raised to 3.5 million due to increased activity in the second quarter. Foreclosures exceeded 300,000 for each month of the quarter. The second quarter statistics have spurred administration officials to summon high ranking representatives from the servicers to Washington D.C. for a meeting with Treasury Secretary Tim Geithner and Shaun Donovan, Secretary of HUD, in late July to see what can be done to ramp up the pace of loan modifications across the country.
When the Center for Responsible Lending, a financial-services research and policy firm, was estimating 2.4 million foreclosures for the year, their estimate on the number of surrounding homes which would be affected by foreclosures and resulting price decreases stood at 69.5 million. Their very conservative estimate put the loss per home at $7,200 which would translate to a drop of over half a trillion dollars in property values across the country. With new estimates of 3.5 million foreclosures for the year and the likelihood that foreclosures will be increasing for higher end properties, the numbers from the Center for Responsible Lending look wildly optimistic.
The government effort to stem this rising tide of foreclosures rests squarely on shoulders of the mortgage servicers but one look at Saxon’s operations confirms that they have a long way to go before they can start processing the influx of applications with anything approaching efficiency. Saxon’s problems started immediately after HAMP was announced as they were flooded with phone calls, requests for information, and paperwork. So much paperwork, in fact, that an internal audit in May determined that their scanning equipment was overloaded with documents sent in by homeowners seeking home loan modifications. The overload resulted in delays, lost documents, and applications.
One of Saxon’s biggest issues is that when it was purchased by Morgan Stanley in 2006, it was servicing approximately 165,000 loans. Instead of hunkering down with a portfolio that was beginning to fall apart, the company had more than doubled the number of loans it serviced by the end of June 2008. Most of the new loans were subprimes from other servicers that were either failing or leaving the business.
Saxon was also caught flat-footed on staffing up for the coming rush of loan modifications. Like other mortgage servicers, the company performed a relatively straightforward set of functions, acting as the direct interface with borrowers on behalf of the insurance companies, pension funds, and Wall Street institutions that owned the mortgages. Those functions included processing payments, maintaining impound accounts, and collecting delinquent payments.
While other companies began gearing toward loan modifications much earlier, Saxon’s energies were being spent on servicing their growing portfolio. Their growing subprime mortgage portfolio was already blowing up in the first half of 2007 when they finally started contemplating loan modifications. It would take another 18 months before the company started adding capacity for mortgage loan modifications. Saxon, late to the game and scrambling to catch up, was immediately buried in applications after the announcement of HAMP by the Treasury and the Administration.
It would take another ten weeks for their internal audit to reveal what everyone already knew; that the company was drowning with inadequate infrastructure and a staff that was untrained, inexperienced, and too small. Since that May audit the company has brought in four outside companies help handle the thousands of calls that pour in daily.
At present, and while still servicing loans that are performing, Saxon and the other servicers are under intense pressure to train a legion of employees in the art of negotiating and executing loan modifications. The problem with the training aspect, as faced by all servicers is that each loan has its own set of circumstances with mortgages owned by different investors with different parameters for judging the merits of each modification. Without an instructional template available, trainees are basically being taught on the fly with a new lesson waiting with each new loan modification that lands in their inbox.
Next up for Saxon is the sure to be unpleasant July 28th meeting with Treasury and HUD officials Washington D.C. One of the issues to be covered will be the publication of each servicer’s results in a form of public shaming to provide additional motivation. The problem with that idea is that Saxon’s mortgage holders already know what’s going at the company. Reading about it on the HUD website isn’t going to make them feel any better about submitting lost documents for the fourth time.
For more information visit www.feldmanlawcenter.com (Feldman Law Center - Loan Modification Company )or call 800-588-0425.
These loan servicers are the focus of the Obama Administration’s frustration due to the slow rollout of the Home Affordable Modification Program (HAMP) since its initiation in March. Adding to that frustration is that the slow rollout of loan modifications under HAMP guidelines has occurred while foreclosures continue to increase at a record breaking pace. Estimated to hit 2.4 million by yearend just two months ago, foreclosure estimates for the year are now being raised to 3.5 million due to increased activity in the second quarter. Foreclosures exceeded 300,000 for each month of the quarter. The second quarter statistics have spurred administration officials to summon high ranking representatives from the servicers to Washington D.C. for a meeting with Treasury Secretary Tim Geithner and Shaun Donovan, Secretary of HUD, in late July to see what can be done to ramp up the pace of loan modifications across the country.
When the Center for Responsible Lending, a financial-services research and policy firm, was estimating 2.4 million foreclosures for the year, their estimate on the number of surrounding homes which would be affected by foreclosures and resulting price decreases stood at 69.5 million. Their very conservative estimate put the loss per home at $7,200 which would translate to a drop of over half a trillion dollars in property values across the country. With new estimates of 3.5 million foreclosures for the year and the likelihood that foreclosures will be increasing for higher end properties, the numbers from the Center for Responsible Lending look wildly optimistic.
The government effort to stem this rising tide of foreclosures rests squarely on shoulders of the mortgage servicers but one look at Saxon’s operations confirms that they have a long way to go before they can start processing the influx of applications with anything approaching efficiency. Saxon’s problems started immediately after HAMP was announced as they were flooded with phone calls, requests for information, and paperwork. So much paperwork, in fact, that an internal audit in May determined that their scanning equipment was overloaded with documents sent in by homeowners seeking home loan modifications. The overload resulted in delays, lost documents, and applications.
One of Saxon’s biggest issues is that when it was purchased by Morgan Stanley in 2006, it was servicing approximately 165,000 loans. Instead of hunkering down with a portfolio that was beginning to fall apart, the company had more than doubled the number of loans it serviced by the end of June 2008. Most of the new loans were subprimes from other servicers that were either failing or leaving the business.
Saxon was also caught flat-footed on staffing up for the coming rush of loan modifications. Like other mortgage servicers, the company performed a relatively straightforward set of functions, acting as the direct interface with borrowers on behalf of the insurance companies, pension funds, and Wall Street institutions that owned the mortgages. Those functions included processing payments, maintaining impound accounts, and collecting delinquent payments.
While other companies began gearing toward loan modifications much earlier, Saxon’s energies were being spent on servicing their growing portfolio. Their growing subprime mortgage portfolio was already blowing up in the first half of 2007 when they finally started contemplating loan modifications. It would take another 18 months before the company started adding capacity for mortgage loan modifications. Saxon, late to the game and scrambling to catch up, was immediately buried in applications after the announcement of HAMP by the Treasury and the Administration.
It would take another ten weeks for their internal audit to reveal what everyone already knew; that the company was drowning with inadequate infrastructure and a staff that was untrained, inexperienced, and too small. Since that May audit the company has brought in four outside companies help handle the thousands of calls that pour in daily.
At present, and while still servicing loans that are performing, Saxon and the other servicers are under intense pressure to train a legion of employees in the art of negotiating and executing loan modifications. The problem with the training aspect, as faced by all servicers is that each loan has its own set of circumstances with mortgages owned by different investors with different parameters for judging the merits of each modification. Without an instructional template available, trainees are basically being taught on the fly with a new lesson waiting with each new loan modification that lands in their inbox.
Next up for Saxon is the sure to be unpleasant July 28th meeting with Treasury and HUD officials Washington D.C. One of the issues to be covered will be the publication of each servicer’s results in a form of public shaming to provide additional motivation. The problem with that idea is that Saxon’s mortgage holders already know what’s going at the company. Reading about it on the HUD website isn’t going to make them feel any better about submitting lost documents for the fourth time.
For more information visit www.feldmanlawcenter.com (Feldman Law Center - Loan Modification Company )or call 800-588-0425.
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