In the Trenches
To cut through the bureaucracy preventing borrowers from getting loan modifications — and thereby control its own claim costs — the mortgage insurer PMI Group Inc. has "embedded" 11 of its employees in the offices of 10 servicing companies.
These on-site specialists identify troubled mortgages that are insured by the Walnut Creek, Calif., company, assess the borrowers' situations and prepare loan mod packages. They do not have the authority to approve modifications, but the insurer says the specialists have rescued some borrowers who would have fallen through the cracks.
"We've pulled loans out of the foreclosure process for things as small as a missing pay stub" that had torpedoed a proposed modification, said John Jelavich, PMI's vice president of homeownership preservation initiatives. "Servicers are so overwhelmed. It's understandable in a way because they're dealing with so much paper, so much volume and so many phone calls."
Since early 2008, his 30-person team, which includes the 11 embedded specialists, has solicited nearly 100,000 delinquent borrowers about workout options. PMI had 126,431 delinquent loans in its portfolio as of June 30.
The goal, of course, is to reduce the losses PMI would take on a foreclosure, Jelavich said. "We're doing all that we can to keep the asset performing."
Don Blanchard, the chief compliance officer at Lender Processing Services Inc., says whatever business his company has picked up as a result of the Home Valuation Code of Conduct may be more trouble than it's worth.
Lender Processing, in Jacksonville, Fla., owns Lender's Service Inc., which oversees a network of appraisers and distributes work to them on behalf of lenders. The code, which took effect May 1 for all single-family mortgages bought or guaranteed by Fannie Mae and Freddie Mac, has given lenders an incentive to use such appraisal management companies.
To prevent loan officers and mortgage brokers from pressuring appraisers to inflate their valuations, the code forbids such sales representatives from ordering the work. It does not mandate that lenders outsource the ordering to appraisal management companies instead. But as a practical matter, doing so may be easier and cheaper for a lender than building an in-house appraisal department from scratch.
"It's a windfall of sorts, but not really," Blanchard said. "Frankly, we're taking so many hits on the publicity side … that really it may, net-net, be better for us if the HVCC goes away."
That's because in recent months mortgage brokers and real estate agents have accused the appraisal management companies of inhibiting a recovery of the housing market by hiring inexperienced appraisers who produce faulty, lowball valuations. (Blanchard calls the claim bogus, arguing that appraisals are low simply because home values have fallen.)
"This whole interaction with" the National Association of Realtors and the National Association of Mortgage Brokers "has been more damaging to our industry and our business model than anything else," Blanchard said. So if the code is repealed, as those trade groups have advocated, "I'm not going to lose any sleep over it."
Blanchard called the code "redundant." Federal agencies have repeatedly issued guidelines designed to combat inflated appraisals over the past 20 years, efforts that have overlapped with laws enacted in 41 states, he said.
What is needed, Blanchard said, is for appraisers use the power they already have to report to the authorities those who try to put illegal pressure on them.
"Appraisers should pass when they're pressured, and turn in. And that one-two punch will send a very clear message to anybody that's pressuring people."
"Extend and pretend" is the new buzzword for how banks are handling commercial real estate loans that will soon come due.
If a bank were forced to re-underwrite the property, loan-to-value ratios "would be way out of whack," said Harold Bordwin, the managing director for KPMG Corporate Finance LLC's real estate services practice. "In order to avoid the problem that arises by knowing the danger, they're pushing it down the road" — a bank will extend the maturity date by a couple years "and pretend it's OK."
Despite the negative connotation of the term, Bordwin said, "extend and pretend" can be a sound strategy.
Lenders and property owners are reasoning, " 'Before we get too close to the maturity date, let's extend this for two years,' and it buys them time" for the economy to rebound, he said.