All of America has learned in recent weeks that there is, for example, a massive difference between a mortgage loan made in California and a mortgage loan made in Florida, regardless of credit profile. Only now is it becoming painfully obvious to all market participants that seemingly arcane differences between a judicial and non-judicial foreclosure process, for example, can meaningfully lead to significant differences in a deal’s cash flow.
How? While the average loan in foreclosure nationally has gone an average of 484 days since last payment, according to data from Lender Processing Services (LPS: 30.79 +0.23%), five U.S. states boast averages well north of 500 days: New York, Florida, New Jersey, Hawaii, and Main
And
But I think it’s time to admit that this is a broken model, and it’s not one that will get fixed by any chest thumping currently coming out of Washington. If investors are committing time to re-thinking the securitization process as a whole — and they are — how servicers get paid should be near the top of this list.
There are new-breed servicers that specialize in defaulted loans, and work with a niche group of private investors (or are captive to them): I coined the term ‘high-touch servicing’ in early 2008 to describe this group, a term that has now become part of industry lexicon. These servicers operate on a different level: paid for performance, and by outcome, they invest more in the people and processes needed to find an disposition other than foreclosure.
One servicer I know of tells me that they short-sale everything they get, and if that doesn’t work, they’ll work to execute a deed-in-lieu (and if they must foreclose, they move like the wind to get it done right). Another high-touch servicer utilizes a single-point of contact start to finish on a default, so a borrower has a real person — the same person — to speak to throughout the process, rather than a call center somewhere offshore. Still others are writing down principal at an amazing clip, because the investors they work for bought their distressed loans at a discount and can afford to do so
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