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Cutting Losses on Loan Defaults

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A growing number of borrowers with negative equity are opting to abandon their mortgage obligations, though a Wharton professor has a possible solution for such strategic defaulters. But for those loans that cannot be saved, an expanding array of service providers promise to make the disposition process more efficient and less costly.

In an article entitled Home is Where the Money Is: A New Incentive Program Aims to Slow Rising Mortgage Defaults, Wharton finance professor Alex Edmans claims that an incentive program could prevent strategic defaults for borrowers with negative equity. Dubbed “responsible homeowner reward,” the incentive provides a “sizeable cash reward” for borrowers who repay their entire mortgages.

The paper noted that nearly a third of U.S. foreclosures during March were strategic defaults versus less than a quarter a year earlier. The article also indicated that upside-down borrowers account for 47 percent of all foreclosures even though they represent just 12 percent for the total mortgage population.

“Lenders do not need to offer 100 percent of the gap between the mortgage and the current price of the house to make a reward program worthwhile to the homeowner contemplating a strategic default,” the article said.”Edmans proposes that a homeowner with a mortgage of $200,000 and a house worth $150,000 might be offered a payment of $20,000 from the lender when the mortgage is paid in full.”

In a Nov. 10 statement, Fannie Mae said it terminated its relationship with the Florida Law Offices of David J. Stern, P.A. Secondary marketing rival Freddie Mac announced the termination of Stern on Nov. 2 following an internal investigation of the firm’s handling of foreclosures.

The Rincon platform unveiled in August by DRI Management Systems Inc. is an online loan servicing application for default mortgage servicers. The initial release included modules for loss mitigation, bankruptcy, foreclosure and real-estate-owned. A third-party vendor network was also part of the initial offering.

“This mortgage crisis makes all previous ones pale by comparison,” said DRI Chief Executive Officer Duke Ulrich — a surfer who named the Rincon application after a surf spot on the California Coast. “Without well-designed and well-executed technology assistance, lenders and servicers are at a great disadvantage in dealing with this volume of defaults.”

The re-launch of REO.com promises to make it easy for buyers and sellers of REO assets, Sorrento Capital said in an Oct. 25 news release. The move represents an “expansion into the REO management and liquidation market.”

More than three-quarters of the properties located in 19 states and listed on Countdown To Buy were sold, the Bethel, Conn.-based company reported. Properties had an accepted offer, on average, within 17 days of being listed — and 90 percent of accepted offers closed. Listing prices ranged from $20,000 to $680,000, while sales prices started at $20,000 and went up to $220,000.

In its 2010 Short Sale Research Study, CoreLogic reported that short-sale fraud is estimated at $310 million each year. Around 400,000 short sales are completed annually — half in Arizona, California, Florida and Texas — and approximately one-in-53 transactions involves unnecessary loss. The average loss is $41,000.

Data Risk Intelligent Verification Engine, or DRIVE, helps identify and prevent losses from short-sale and flipping fraud, DataVerify claims. Among short-sale transactions reviewed by DataVerify, 3 percent involved undisclosed industry insiders, while 7 percent involved undervalued properties and 4 percent involved “very high rates of property flipping.”

Also promising to help mortgage holders avoid real estate fraud is OfferSubmission, which claims that nearly half of the “transactions negotiated through OfferSubmission net 100% or more of the list price.” The company says that real estate agents don’t necessarily put the interest of the lender first and sometimes don’t present all offers to the seller even though “there are laws in every state that say all offers must be presented to the seller.”

OfferSubmission said it handled $528 million in offer volume during August.

TrackPoint has helped PMH Financial process short-sale transactions more quickly while utilizing fewer resources, DepotPoint announced in October. PMH, which reportedly manages $2.5 billion in real estate assets, is using the “services to address its rapidly growing demand for short sales.” TrackPoint maintains compliance with the Home Affordable Foreclosure Alternatives program.

Short-sale and deed-in-lieu services are now offered by Altisource Portfolio Solutions S.A. The mortgage service provider boasts lenders, mortgage insurers and “one of the nation’s largest subprime servicers” as clients.

An “end-to-end default solution” announced last month by ServiceLink operates as “wrap-around technology” that helps lenders comply with requirements from Fannie and Freddie, investors and mortgage insurers. It also helps with audit requirements.

“Combined with customized outsourcing components including HAMP processing, loan modifications, short sale and deed in lieu, ServiceLink can provide capacity on a continual or as-needed basis, acting as an extension of the servicer’s organization,” the statement said.

ServiceLink recently claimed that its short-sale business model has resulted in less than 30 days from when the servicer assigns the file to contract acceptance. In addition, contract approval to closing has fallen to fewer than 45 days.

A recent news release from Field Asset Services said that Collateral Command became available as an integrated solution for property management services and support. The service promises to be a single source for access to the most important services needed to maintain a foreclosed or REO property and includes the availability of a new utilities management service.

BRES Advisors Inc. claims that its REOlytics models the future asset behavior of residential real estate. BRES said last month that the tool factors the impact of local market modeling, future value change and the probable absorption time of properties in the lending and servicing cycle.

Sub-servicer BSI Financial Services announced an alliance to provide foreclosure processing services from Standard Trust Deed. An automated platform created through the venture promises to eliminate the delays that occur in the normal course of manually processing a foreclosure.

It was the fourth consecutive year that Hughes Watters Askanase LLP was awarded the Lender Processing Services Summit Award for having the highest ratings in the LPS attorney network for both bankruptcy and foreclosure. The Houston-based firm said it participates in Freddie’s designated counsel program for Texas and Fannie’s retained attorney network for Texas while it reportedly holds the “Angel” designation in the Wingspan Preferred Attorney Network.

Chase issued a statement last month indicating that it is participating in Michigan’s Hardest Hit fund for unemployed borrowers. The fund pays as much as $9,000 for up to half of a qualified borrower’s monthly payment for as many as 12 months. The program had yet to be rolled out as of Chase’s announcement.

A new Web site launched by Lafayette, La.-based IBERIABANK features the bank’s residential and lot REO properties located throughout the Eastern United States.

Dallas-based REO Training Solutions Inc. was hired by Freddie to provide instruction for new listing brokers and other vendors on HomeSteps’ policies and guidelines, procedures and best practices. In an Oct. 27 statement, Freddie said that HomeSteps is its REO sales unit.

HomePath.com, Fannie’s Web site for its REO properties, was recently promoting a $1,500 bonus paid to selling agents on transactions that close by Dec. 31. The promotion also includes a 3.5 percent home-buying borrower bonus.

In August, the Washington, D.C.-based secondary lender held an auction for nearly 100 South Florida properties on its HomePath system.

An end-to-end REO broker back-office solution is being touted by Integrated Mortgage Solutions. The offering reportedly helps REO brokers manage all administrative functions like paying the utilities, home owner associations dues and performing inspections.

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