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Turning red into black: servicers are trying a little bit of everything to save borrowers from foreclosure. Loss mitigation is being taken to a whole new level, as servicers get creative to help save homes.

Article Excerpt
As subprime foreclosures and industry losses mount, many investors as well as servicers, delinquent homeowners, counseling agencies and community groups are embracing the goal of home retention through a variety of loss-mitigation efforts, including loan modifications. [??] "The industry at large is more geared up than ever before to address many of the default issues, with particular emphasis on home retention," observes Gene D. Ross, president of Virginia Beach, Virginia-based LandAmerica Lender Services and its LoanCare Servicing Center subsidiary. Noting that traditionally investors--and to some extent, servicers--were reluctant to modify loan terms, including reducing interest rates, Ross says that "when you're dealing with the volume that everybody is looking at, then you've got to re-examine what is best under the circumstance." [??] "There's more of a coming together of key parties to try to resolve this," observes the vice president of one major full-service lender, who asked not to be identified. "There's now more of a feeling of 'Let's try to keep people in their homes' and collaborate on that effort," he says.

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If foreclosures continue to mount, says Ronald M. Faris, president of Ocwen Financial Corporation, West Palm Beach, Florida, losses on each individual foreclosure will mount. He points to the Cleveland market, where Ocwen services many loans.

"There's a flood of foreclosed properties, and it's difficult to sell them. And because of a ripple effect on homes [from foreclosures], it's becoming a crisis," Faris says. "So keeping someone in a home and not letting them go to foreclosure will help other loans in our portfolio."

"There has been a sea change, and servicers are more open to loss mitigation," says Michael Van Zalingen, director of homeownership services with Neighborhood Housing Services of Chicago (NHS), Chicago. "But too often their solutions are short-term and require a large portion of the arrearage" to be paid at the start, he says.

"Servicers, to some degree, have been creating special departments and special teams, and in some cases are actually being more flexible," says NHS counselor Kathleen Van Tiem. "But there's still so much inconsistency with servicers and with the departments you get."

It takes teamwork

Market players are working together more than ever before, even bringing in counseling groups, as servicers realize that the delinquency and foreclosure challenge is too great to handle alone.

"We realized very early on that we couldn't do it alone," says Shane Ross, senior vice president of account management at Houston-based Litton Loan Servicing LP. "Any servicer out there that thinks they can do it alone is gravely mistaken. You can't do it alone."

"Things are swinging toward loss mitigation," echoes Tom Healy, CMB, president of the Sextant Group Inc. and its Servicing Source subsidiary, Fort Lauderdale, Florida.

"You can't just have hundreds of thousands of houses in foreclosure. That didn't work well in the RTC [Resolution Trust Corporation] days, and I don't think it will work well now. Investors are getting much more...

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