Creative efforts needed to deal with foreclosures

Denver Business Journal – Last week, Treasury Secretary Timothy Geithner announced that about 500,000 American families were participating in the home loan modification program initiated by the Obama administration. But the complexity of the paperwork required to modify a loan, coupled with rising unemployment and depressed home prices, may conspire to find many more losing their homes in the months to come, the head of the Mortgage Bankers Association said Tuesday.

“You can’t modify someone if they don’t have income or a job,” said John Courson, president and CEO of the MBA, during a news conference. “We have to be realistic going forward. If we are going to play a numbers game, we are going to see a smaller percentage of borrowers in default able to be modified. It’s an unfortunate and difficult fact we are going to have to face.”

The MBA, which is holding its annual convention this week in San Diego, is looking to create a think tank of people whose mission will be to find new and creative ways to overcome the challenges that the next wave of foreclosures will present.

One of the biggest challenges faced by those attempting to modify loans is the massive amount of paperwork borrowers must complete. In about 99 percent of the cases, the packages come back missing documentation or with some kind of error, noted Michael Berman, vice chairman of the board of MBA and president and CEO of CW Capital, a real estate finance and investment management company.

He said servicers are learning that they have to spend more time upfront with borrowers and lenders.

“When a loan is originally obtained, in most instances, there was a loan officer,” Berman said. “The one thing we are coming to a conclusion about is to build that into the process in order to successfully modify the loan.”

Even more disturbing, Courson noted, is that nearly 50 percent of borrowers facing foreclosure have not had contact with or talked to their loan servicer.

“Some because of abandoned properties, others because borrowers are shamed and embarrassed,” he said.

And, the problem is expected to get worse before it gets better. The MBA expects unemployment to keep going up until the middle of next summer, with delinquencies to follow and foreclosures going up through the latter part of the year.