Won’t or can’t? Part 2, how fast a fix?
[Continued from yesterday’s Part 1.]
Yesterday we saw that even with strong Administration and Congressional pressure for lenders to modify loans, and modest financial incentives to loan servicers achieving successful workouts (we’ll return to those below), as chronicled in this Wall Street Journal, many people – at least, the Journal had no trouble finding plenty – are waiting as impatiently as those who expected to get free Kentucky Fried Chicken some months back.
That’s a big oupsie, isn’t it?
Actually, despite the Journal’s chastisement of Saxon for ‘falling behind,’ an extraordinary number of loans have been dealt with:
This always presumes that you’re supposed to modify all these loans, doesn’t it?
Saxon so far has completed nearly 17,000 loan modifications where borrowers have submitted income verification and other documentation and made their first payment.
All of you have already been accommodated
In fact, Saxon’s been accelerating its procedures in a manner that, were it applied to new loans, would be accused of recklessness:
In total, it has given initial approval of 28,000 modifications where the borrower has provided spoken information about income, a process that underscores the government’s desire to move things along quickly.
Once upon a time, that approach was called a no-doc loan or a liar’s loan.
Trust me, the sign is lying, not me!
I presume Saxon’s smart enough not to convert an initial approval into a final without the borrower’s documentation. Certainly Mr. Meola’s loaded with experience:
Charged with beefing up Saxon’s operations is Mr. Meola, an accountant who held senior mortgage positions at Citigroup Inc., PNC Bank, Washington Mutual Inc. and New Century Financial Corp.
Having been the EVP of home lending at a subprime lender that went massively bankrupt in April, 2007 is certainly experience, but is that of the comforting kind?
We’re experts, we have experience
Mr. Meola, 52, is the author of a how-to management guide, which offers tips on communications and staying positive.
I shouldn’t mock that, but how can a blogger resist?
“Always look on the bright side of life”
He joined Morgan Stanley in the spring of 2007 [After New Century's bankruptcy – Ed.] as chief operating officer of its residential mortgage business as the firm was in the midst of a massive spurt of loan originations and securitizations.
Despite the Journal’s understandable sympathy toward Mr. Meola, leaping from a bankrupt lender to another lender rapidly buying the same product, and in vintages that we now know were among the worst – well, that’s not what would lead my resume.
‘Massive spurt’? Really?
That growth had enabled Morgan Stanley to climb up the rankings of subprime-mortgage sales. Within a few months, Mr. Meola and Morgan Stanley effectively stopped making subprime loans as the industry collapsed.
Perhaps Mr. Meola was the voice of caution. That he is still at Morgan Stanley suggests so.
At the time it was purchased in 2006, Saxon’s portfolio totaled 165,000 loans for an unpaid balance of $26 billion. As of June 30, 2008, the portfolio had grown to 342,404 loans, the bulk of which were subprime, with a balance of $56.9 billion.
Even if Mr. Meola turned off the tap in September 2007, outstanding commitments would have taken some months to close, and the portfolio would swell.
That swelling’s still hurting
The 2006 vintage averaged $157,500 apiece; the 2008 vintage $166,000, or 2.5% annual increase in loan size – basically keeping up with inflation.
Another inference in Mr. Meola’s favor is this:
Part of the problem at Saxon is that it didn’t ramp up its ability to modify loans as early as other servicing companies. A spokeswoman for Saxon says that when Morgan Stanley purchased the company in 2006, it lacked enough employees and systems to undertake massive numbers of modifications. It wasn’t until the spring of 2007 – after its portfolio of subprime loans had already started to sour [And after New Century had gone bankrupt, and Mr. Meola had joined Morgan – Ed.] – that Saxon began to focus on modifying loans. Not until the fourth quarter of 2008 did Saxon boost its capacity to handle a large flood of requests.
We’re under water
Nor would there have been a huge reason to do so, as until that time there was no Federal relief to change the workout equation. The offers are generous:
Some Saxon borrowers have gotten swift modification approvals. Lorraine Rodriguez, a hospital worker in
Monthly payment cut from $3,275 to $1,900, saving you $1,375 a month. Who can argue with that?
The new rate “is still a high amount and is tough for us,” says Ms. Rodriguez, 57.
If a 42% debt service cut is still ‘tough,’ how ever did you buy the property in the first place?
Ambition, that’s how
If anything, Saxon’s been too generous:
Saxon’s borrowers’ rate of so-called re-defaulting — or defaulting on a loan after it’s been modified — has also been higher than most.
Translation: We promised you’d reform, we gave you a break, now you’re in the soup again.
Higher is not better
Of the loan modifications made by Saxon in the first quarter of 2008 where monthly payments were decreased by more than 20%, 34% of the amount owed was delinquent by 60 days or more 10 months after the modification, according to Credit Suisse Group.
The ‘20% drop’ is a shorthand for ‘modifications big enough to be meaningful.’ For every three borrowers to whom Saxon offered a concession – again, a free, no-cost concession – one out of those three went back in default.
One of those three balloons pops
That compares with an average of 27% delinquent for the 18 servicers Credit Suisse analyzed.
If Saxon’s having 1 in 3 redefault, while the average is 1 in 4, Saxon’s being too nice.
[Treasury Secretary Geithner] said the agency would begin publicly reporting each firms’ results starting in August –
Perfectly appropriate, but what statistics will be reported and what inferences will be drawn from them?
– and that Freddie Mac, the government-controlled mortgage buyer, would be auditing a sample of declined requests to make sure no borrowers were denied incorrectly.
An ex post facto audit with a standard of zero defects? Why not just jail me now?
Do not collect $1,000 reunderwriting fee
Saxon is certainly trying:
Mr. Meola says in the fourth quarter of 2008 he had ordered Saxon to upgrade its call-center systems, improve training and make sure callers were routed to the right employees.
The company has retrained 659 employees on how to implement the government program. It has invested in a new, high-speed scanning software system, which can scan up to 125 documents a minute. Before the change, it took 20 minutes to upload the same amount of documents.
Mr. Meola reviews a sample of calls into the Saxon call center, including analyzing wait times. His checklist, which monitors customer dealings in 30-minute intervals, includes counting the number of denials and available agents.
Scoring based on how many agreements are reached is self-adjusting; you can always hit whatever ratio you want just by telling your people to be easier or tougher.
Just modify it, okay?
He’s been deflecting criticism from some watchdogs. In April, for example, Saxon executives convened at the
Sitting in a small conference room, members of the bureau told Saxon executives of complaints about service, billing and miscommunications during refinancing, according to an agenda for the meeting. More than 300 people had lodged complaints in the year ending early 2009.
Sorry to be repetitive, but these people are asking for unilateral relief. Patience is a virtue.
Won’t, can’t … or shouldn’t?
Mr. Meola says complaints spiked after Saxon took over a portfolio of 80,000 loans from a troubled rival in 2007.
No good deed goes unpunished.
We’ll make your loan conform
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