Credit Counselor: New Year Could Be Expensive for Managers of Problem Loans.(Brief Article)

With the mortgage industry consolidating, the start of an economic recession, high unemployment and increasing borrower default, the year is not off to a good start for servicers.

The near future looks like it will be an expensive time, with servicers having less opportunities to refinance and cure troubled loans with alternative lenders and having to rely more on loss mitigation and workout plans with borrowers, said Joseph Falk, president of the National Association of Mortgage Brokers, McLean, Va., and the former president of a subprime origination and servicing company.

According to Mr. Falk, "The servicing world needs to be on heightened alert because of several factors that all play into the servicers ability to be relieved of a loan in trouble by a refinance transaction.

"Over the last several years, several things have happened to reduce the supply of credit for takeouts on problem loans. One, there is a contraction of the mortgage origination marketplace, (meaning) there are less wholesalers and retailers who are currently populating the mortgage industry. The contraction of the supply of different lenders makes curing problem loans through refinances more difficult."

Mr. Falk added, "The subprime world that would be the marketplace that would entertain a refinance on a problem loan has been even more impacted by the contraction of the supply of creditors."

In continuation, he said, "The recent tightening of the Home Ownership and Equity Protection Act triggers that were announced in 2001 by the Federal Reserve will also make subprime lending more difficult and the refinance of problem loans that much more difficult to achieve."

In Mr. Falk's view, "Refinance is one of the best tools that a servicing department has in solving their problem loans, but as credit becomes less available, then it will become more difficult to have that solution and ...