Changes to the Home Affordable Refinance Program fashioned as “penalties may work better than incentives” may boost third-party servicing demand for the foreseeable future and then some.
If finding the best refinancing solutions was “a big theme” at the Mortgage Bankers Association annual meeting in Chicago this month, yesterday’s move by the Obama administration is challenging lenders and servicers to bring more eligible borrowers to refinance their mortgages at their expense or face certain penalties.
The previous version of HARP which aimed to solicit current borrowers and help them refinance was not successful as “none of the mortgagors bought into it,” said Lance Perry, NCCI’s loss mitigation director who also is responsible for the outbound and inbound call center operations, quality control department and mailroom, and expects further third-party servicing growth.
The new HARP includes changes to some of the stipulations of the program in an effort to push servicers to qualify more homeowners instead of just paying lip service, as they have been doing with the previous version of HARP.
Perry, who worked as a servicer for the past 15 years, argues that until now HARP was bound to fail because, “It was a kind of Catch-22. How interested can a servicer be in refinancing performing borrowers when the immediate outcome of lower mortgage payments is less servicing revenue? That’s why it has been so slow to get off the ground.”
NCCI has already seen interest in HARP and refinancing options from mortgage insurance clients who want to offer the option to their borrowers. Meanwhile, the mortgage companies “have just started to get in place departments” to be able to handle borrower solicitation, processing and underwriting. “There’s some conflict of interest” including the requirement that does not allow a mortgage holder to solicit its own customers creating a need to hire another company to refinance the loan.
It means mortgage banks will have to rely on third-party service providers like NCCI to get HARP updates, required documentation to get started and speed up the process of mortgage refinancing in compliance with the new regulation—even though the final decision is at the lender’s discretion.
HARP came out over one year ago, but there was no pressure to comply. The updated HARP has changed that. “As long as there’s pressure by the GSEs to do this and to be audited by it, the servicers will do it,” Perry says. There is a risk he says for it to be counterproductive with some performing borrowers creating an incentive for the m to “strategically default because of desperation.”
HARP enhancements may be too little, too late, at least a couple of years late, says the chief executive officer and president at National Creditors Connection Inc., Lake Forest, Calif., Richard Rodriguez.
Nonetheless the new HARP will help more customers if servicers truly maximize the value of their borrower contact, and borrower engagement efforts, at the doorstep.
It is what NCCI has been doing for the past two years since Rodriguez decided to specialize his company in face-to-face borrower contact as the best way to be ahead of the game in a crisis-ridden housing market.
NCCI has been growing rapidly since. Only a few days ago the mortgage servicing outsourcing company said it has tripled the size of its loss mitigation staff, doubled the nationwide field representatives network, and is investing in further updates to its telephony and Internet systems designed for delinquent borrowers, in line with its loan modification fulfillment services, to be able to respond to “sharply higher market demand.”
What does it mean to get one step ahead in today’s market?
“Component service servicing” works really well and has been NCCI’s natural progression, Rodriguez said. “A big piece” of this effort is to make contact, communicate often and intervene early. The whole mortgage industry is moving towards that strategy and along the way implementing as much technology as possible. It will be the way to the future at least for another few years, he said.
“HARP will really take off” in the next two or three months, Perry says. “I think lifting the loan-to-value cap is going to blow the lid off this.”
The GSEs are waiving the LTV cap and origination fees on Fannie and Freddie loans in cases when the property is “under water” or worth less than the mortgage loan. “It was the last regulation change needed to really get the program going,” he said.
Before the expected refi boom takes off, however, servicers must contact these borrowers following a number of steps. Industry data show only about 20% of borrowers respond to direct-mail so “to get hold” of the remaining 80% servicers need to be at their doorsteps and engage face-to-face with millions of homeowners nationwide.