With no end to the homes disaster in sight, the paucity to alter advance contracts to make payments more affordable is greater than ever. While the reckon of modifications is rising steadily, it is still continual far behind the need. In the head lodge of 2009, loan servicers reduced the curiosity rate or loan rest on only 120,465 loans, according to their reports to the government.
This is an annual percentage of about half a million, which is no more than one-fifth of what is needed. Modifying a mortgage is not that big a deal. "After you get the borrower's rank package, it takes only about 45 minutes from beginning to end to reorient a loan," said Joseph Smith II, president and first chief of Default Mitigation Management. Smith has been modifying loans on a pint-sized spectrum for several years.
"This includes reviewing a budget with the borrower (20 minutes), determining excess gain (two minutes), completing the accommodation modification opinion worksheet (10 minutes), generating a bosom forbearance and mailing it out (10 minutes), and business the borrower to come in the issue (three minutes). A few minutes more may be needed for additional calls, generating indisputable modification documents and follow-ups, so let's style it an hour, which is conservative," he said. Let's be even more cautious and use two hours. J.P. Morgan Chase, for example, said it has 3,500 loan-modification counselors.
Using the two-hour assumption, 3,500 workers could tone down 70,000 cases a week, 3.5 million a year! Clearly, there is an elephantine space between the productivity of servicers today and what is possible. The reasons for the split are well understood.
Servicers, over the years, focused their set-up improvement on reducing their costs of dealing with borrowers who sent in monthly payments. Those with pay problems were few in mob and could be handled by a rather close staff. But as the numbers of riddle cases exploded, servicers became overwhelmed.
Most companies responded by sincerely expanding their counseling staffs, but the systems needed for the staffs to cultivate effectively have been lacking. Smith notes that "while most credit servicers are troublesome to reform the situation, maturation has been slow. Most servicers have insufficient gather routing for inbound calls, have not enough mailrooms and fax and cast facilities, be systems for tracking files, order undue numbers of hand-offs in the decisiveness process, and deal with in the main in a firefighting emergency mode." The results are well known to the borrowers and their advisers who have tried to get their loans modified.
It takes forever, and at times it is impossible, to get through to the counselor they contacted initially. They may have to begin again with someone else, who may not be able to command their enter and who may give them facts that conflicts with what the primordial counselor told them. If the borrower has not submitted all the normal forms, each one filled out correctly, the data is expected to be put aside, which the borrower may not certain about. Files that are put aside often get lost, which means the borrower has to resubmit the unimpaired file, by any chance without conspiratorial what was illegal with the previous submission.
In some cases, documents get dead in a unorganized fax room and are never logged in. When the borrower calls, no one knows anything about the submission. Delays are compounded by uncalled-for divisions of responsibilities, including analysts who make sure of the math and negotiators who deal with the borrower. Smith notes that "if the analyst has a week of cases in his passage and the arbitrator has the same, the borrower's come to on the back burner is two weeks, even if all else goes smoothly.
" The bottom row is that a development that could be done within the era takes weeks or months and often doesn't get done at all. The one preoccupation that could come apart this logjam is widespread adoption of a Web portal that would when weld servicers with borrowers and counselors. The portal would brook them to access a servicer's defined requirements and submit modification applications just by clicking a button.
This would send on the reference to the servicer, who would also be alerted by e-mail that a untrodden borrower troop has been created. All subsequent messages by the servicer and the user, and all supplemental documents submitted by either, would be recorded in the file. The portal would supplant communication by phone and fax.
The counteract forms are filled out because the narcotic addict receives them entirely from the servicer. Its use would waste fancy telephone waits, the impotence to find the same person during subsequent calls and parturition of conflicting information. The portal would approve both parties to think of all messages by sender and date, so there would be no dissension of what was said, when it was said, and by whom it was said. I would not have bothered chirography this if a portal that did all these things did not exist.
But it does, developed by Smith's Default Mitigation Management. I have no economic affect in this firm. The portal is being worn by lawyers with a sum of sensible servicers that narration for about three-quarters of all loans.
The servicer pays a unprofound processing fare for each file, while the lawyer pays nothing. The portal needs to be opened to counselors and borrowers, if things go well in that order. Getting counselors depends mainly on the important counseling organizations (Hope Now and NeighborWorks), which have not yet committed. The Treasury, while expressing exasperation at the easy tread of modifications, appears to be keeping hands off. (I have wondered whether the Treasury is wise that the portal provides the means for assessing servicer performance, something it does not now have.) If the counselors don't come aboard shortly, manner for DMM and the servicers to advertise the portal to borrowers.
Jack Guttentag is professor of economics emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, www.mtgprofessor.com.
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