Point of View: Servicers Challenged By Current Environment.

Rick Glass has served the mortgage banking industry since 1983. Before opening his own the retained firm, specializing in nonprime mortgage sector executive search, he led the mortgage division of the nation's largest executive search firm. Mr. Glass can be reached at rick rtgaa.com.

Simple math tells us that all those 2/28 adjustable mortgages originated last year and already earmarked as the weakest subprime origination vintage on record, will be hitting their first interest rate resets next year, and for those borrowers already stretched to, and beyond, their financial limits, that will be an unwelcome calendar change.

Foreclosure and delinquency have been in the headlines all year. The subprime sector is against the ropes, reeling from an unprecedented combination of corrections including: a dry real estate market, tightened underwriting, and subprime origination activity is all but at a stand still, as credit spreads on those securities have more than quadrupled since last year. Add to these woes, rising delinquency rates, defaults, a lack of qualified loss mit professionals and greater borrower sophistication leading to more litigation and the mix is nothing short of combustible.

Some analysts estimate that nearly 2 million adjustable-rate mortgages will reset to higher rates through next year, which presents real challenges to mortgage servicers whose executives must deal with trouble they saw coming first, according to Teji Singh, Option One's former chief servicing officer.

She says servicers began detecting elevated early payment default rates, and hearing borrowers were overstretched, as early as the fall of 2006. By January this year, Teji says, "the whole industry knew we were on fire."

Some servicers are finding it difficult to cope with the increasingly problematic collections environment. Many of the traditional default servicing practices and tactics utilized in the past are not effective in today's uncooperative and stressed marketplace. With servicing costs on the rise and borrower connectivity difficult, best practices are being revised and innovation in application can prove beneficial.

In some cases, when the larger mega-lenders with gigantic portfolios have significant delinquency increases they may not have the bandwidth to manage the asset, forcing a sell-off or outsourcing.