Lemonade stands and Mortgage Servicing

My 10 year old daughter has become very fond of setting up lemonade stands in the front yard. I’ve had to limit her to 3 this summer, she’d like to have one every day. I always think what a hassle for me it’s going to be. I’ll probably end up supplying the lemonade, cups and ice, help set it up, take it down, and clean up…not to mention I have to sit outside in the sun to keep an eye on things.

Sweating and brooding in the sun in my collapsible chair this last week as she sold her goods, it dawned on me how selfish I was being. After all, what better way for a child to learn life lessons like entrepreneurship, hard work, self-promotion, confidence and host of other positive attributes? She doesn’t make much, but she even voluntarily gives a pretty hefty portion of the money to a pet charity she’s involved in with her mom.

I was missing the bigger picture. Molding her future, happiness, and success is really what my job is as a parent. That small amount of time and effort I put into helping her was really what I am supposed to do, and I need to remind myself of that sometimes.

I’m in the Mortgage Servicing Industry, as are most people that will probably read this. An industry virtually unexplainable to anyone outside of it. I sometimes feel like I should carry a whiteboard and marker with me so that when asked, I can attempt to explain what I do. It’s made up of many different types of companies: Banks, mortgage companies, mortgage servicing companies, master servicers, law firms, title companies, rating agencies, government oversight agencies, consultants, technology companies, property preservation companies, insurance agencies, just to name a few.

After reading the industry news I couldn’t help but draw a parallel between that lemonade stand and our industry. Our concerted efforts, our jobs, should be to service loans on behalf of the ultimate customer, which is the borrower. It’s easy to lose sight of that, and I am guilty of it too. When decisions are made in our industry, how often is the impact on the borrower truly considered?

Government oversight agencies have good intentions, trying to protect borrower’s interests, but at what point does the bank or mortgage servicing company start to focus more on adhering to thousands of ever-changing and many times obscure regulations?   Whole departments are created just to deal with requirements, else penalties could cripple them.

Many banks and servicers are not focusing on the technology or infrastructure required to alleviate huge backlogs of pending loan modifications, and other loss mitigation options that borrowers qualify for. Borrowers are sitting at home worried for months about what is going to happen to them as their requests and financial packages languish on someone’s desk. Some of us within the industry are even dealing with this reality.

I know that there are many complicated factors involved in solving every problem. But I, for one ,am going to try to keep the borrower in the forefront of my mind as I make decisions today. Come to think of it, a glass of lemonade sounds good right about now!

Mike Meroney

DLS Servicing Consultants – Follow my Company

mmeroney@assistanceoptions.com

www.dlsservicing.com

www.waterfallcalc.com

FHA CWCOT – Are You Prepared?

Are you prepared for the new FHA CWCOT requirements as stated in Mortgagee Letter 14-24 which becomes effective for foreclosure sales scheduled for February 1st, 2015?

Do you know that you should be ordering appraisals on those properties ASAP?

Let DLS Servicing Consultants help you develop a strategy and create your core policies and procedures to fit your unique portfolio…this is a complicated, important, and huge change in FHA default servicing requirements.

Contact me today at mmeroney@assistanceoptions.com or 616-570-0199 to discuss how our FHA servicing expertise can help your company.

***DLS Servicing Consultants, LLC is a mortgage default servicing consulting and service provider specializing in sub-prime, high touch, FHA and Housing Finance Agency Loan Servicing.

We provide our clients with reliable and responsible consulting and outsource services, allowing them to handle their core business. Providing unsurpassed quality and flexibility, DLS offers our clients a wide variety of options and services geared toward maximizing return on distressed assets.

Our unique and adaptable approach allows for expansion on demand to meet and exceed the needs of our clients. Our versatile workflow process allows for customizable programs designed specifically around your business. By taking a proactive approach to improving our process and our lines of communication, we afford our clients maximum profitability.

DLS Servicing Consultants, LLC – DLS is a Woman-Owned, Small Business Enterprise operating in the mortgage servicing consulting and outsourcing industry for more than 15 years.

FHA Loss Mitigation: Navigating The Waterfall within the Waterfall

Most seasoned loss-mitigation management and staff are aware of the FHA Waterfall and the order in which home-retention options should be considered:

  1. Forbearance Plan
  2. Repayment Plan
  3. Standard Loan Modification
  4. HAMP Modification

I believe that many servicers have an understanding of this and have been able to put together a decisioning tool in one format or another that allows them to struggle through the river of regulations and at least safely navigate and find the correct path through the first set of falls.

Many servicers, however, fail to understand how to handle the second set of falls. Within the HAMP modification, there are 4 paths that must also be considered in a specific order, otherwise the servicers’ ship will be sunk by FHA in the form of large penalties and demands of indemnification. The second set of falls require the servicer to consider, in order:

  1. A HAMP Loan Modification only
  2. A Partial Claim only
  3. A HAMP Loan Modification where some of the arrears are put in the Partial Claim, with the balance being capitalized in the modification to achieve the target payment
  4. A HAMP Loan Modification where all of the arrears can be placed in the Partial Claim and if necessary a principal reduction in order to reach the target payment amount without exceeding the maximum claim amount

The first set of falls are difficult enough to navigate for servicers. This second set is where you’d better have one of the most complex Excel spreadsheets known to man, or utilize a software created with complex mathematic algorithms designed specifically for FHA loss Mitigation.

DLS Servicing Consultants, LLC has created such a program in WaterfallCalc.com. It will accurately determine, in 10 minutes, the correct FHA loss mitigation home-retention option that the borrower qualifies for. We have found that nearly 75% of loans that are run the system result in one form of the HAMP options.

Some of the features of are:

  • Will calculate the maximum claim amount, less any previous partial claims
  • Calculates the target payment in compliance with FHA guidelines
  • Evaluates whether a standalone loan modification or standalone Partial Claim can be approved based on FHA requirements
  • Determines if a principal reduction is needed to meet the target payment amount
  • Maximizes the allowable claim, and then capitalizes any other amounts that are needed to bring the loan current
  • Only approves a HAMP option if the new payment results in a front end DTI of 40% or under
  • Provides details for the claim breakdown, including amount needed for arrears, legal fees and costs, escrow shortages, netted against trial payments received
  • Will automatically calculate whether 3 or 4 trial payments are required based on whether the loan is already in default or in imminent default
  • Recalculates the borrower’s net surplus income based on the new monthly payment and provides a warning message if the borrower still needs to reduce other spending.
  • Recognizes written variances given to Housing Finance Authorities for interest rate reductions
  • and/or term extensions
  • Will perform the calculation for the maximum rate allowed by FHA, and provide the correct modified interest rate – either the max rate allowed or current rate, whichever is lower
  • Lays out the distribution of claim funds (payment application, legal fees and costs, or escrow shortage recovery), and details how any remaining capitalization was calculated

Many hours of programming and reviewing with HUD to assure compliance have gone into this software, and we believe it is, by far, the best product in the industry. We would very much like to show interested servicers a demo of our software to at least compare it to what you are currently using. We think you will be impressed.

Michael Meroney

and

mmeroney@assistanceoptions.com / 616-570-0199 x127

Time to Change the Menu for Mortgage Banking Industry

I’ve never personally eaten a frog, let alone tried to cook one. I’ve heard they taste like chicken, so maybe I’ll have to give it a try sometime. Even though I’ve never eaten one, I certainly have heard that there is one right way, and one wrong way to cook them.

If you put the frog in a pot of cold water, and slowly heat it up to a boil, the frog doesn’t notice, and soon enough the water is boiling and the frog is cooked. Alternatively, if you put the frog in a pot of water that is already boiling, the frog will jump out and you’ll go hungry. Either way it’s done, someone gets burned.

A few years ago, the mortgage industry was cruising along nicely; anyone could get a loan. I even briefly worked for a mortgage broker (do mortgage brokers even exist anymore?). There was a loan type for anyone: Stated income, no doc, negative amortization, zero credit score, no down-payment, HELOCs, all with ridiculously low interest rates. The Federal Reserve failed to use its regulatory authority over banks, mortgage underwriters and other lenders who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability). For years, banks were seizing the opportunity and raking in money making risky loans. Eventually, the bubble burst. The water temperature was rising very slowly over a long time. The frog didn’t notice what was happening until it was too late…bad news for the frog.

Now we’re in a completely different situation. In a knee-jerk reaction and with finger-pointing criticism and blame, the government has passed laws and instituted policies to throttle banks and lenders. Newly created agencies regulate the industry in an effort to protect the consumer. The intent is good, but the method is causing turmoil within the industry. Lender requirements are so demanding, confusing and backed by threats of huge penalties for non-compliance that many small banks may have to get out of the business of lending. Even large banks are raising credit requirementsand reducing or eliminating certain loan types because the penalties and risk is too great. These are the types of loans that are more favorable to lower-income families.Servicers have to create whole new departments and technology simply to deal with the ever-changing and complex government-mandated requirements. The CFPB has even created a consumer complaint website where borrowers can vent their frustrations; however there is no recourse for the lender/servicer to respond to these complaints. Studies indicate that 77% of these complaints could be closed with a simple clarification, without relief needed of any sort. Organizations comprised of mortgage banks and servicers have formed groups to lobby against what they deem as unfair practices by the government. Clearly the frog was thrown into a pot of boiling water…and that’s bad news for the consumer.

I don’t know what the answer is, but it seems like the government is still punishing banks for past deeds. Banks and servicers are businesses which employ many good people across America. Businesses are in business to make money. I think the two sides need to sit down face to face and hash out an equitable way forward. One which includes regulation and oversight, but not to the point where banks become technology and regulatory compliance companies that occasionally lend money to people.

Maybe it’s time to put something new on the menu. Hey. Here’s an idea: How about lobster…after all, they can’t jump.

Michael Meroney