Servicers Need be Proactive With ARM Resets.

Dallas -- As servicers get ready and start to deal with adjustable-rate mortgage payment resets, the multifaceted national effort to save homeowners in distress is an endeavor that requires proactive intervention and sometimes, unpopular cathartic measures.

Right now, the industry needs to face its inability to be proactive, said Terry Couto, a partner in the Tampa, Fla., office of Newbold Advisors, at SourceMedia's Mortgage Servicing Conference here.

"One of the biggest problems servicers have today is managing the surge of delinquent loans. They are finding it difficult to efficiently hire, train and manage all the additional people it takes to handle incoming phone calls. That makes it even more difficult to be proactive, especially in making outbound calls and contacting borrowers to discuss alternatives before their ARM loans reset."

Fast and timely decision-making is another challenge. Servicers have "only a small window of time in which most loans can be saved," he explained, once a loan becomes 90 to 120 days delinquent, it is often too late to develop a workout. The 22-year industry veteran believes results improve when servicers "spend more time analyzing their portfolio and developing strategies" based on solutions that meet the respective investor guidelines.

"This would allow them to focus on salvageable loans and minimize time spent on loans that have little chance of survival," Mr. Couto said.

"Few would argue that a big part of our problem is that we made loans to people who can't afford the payments. So it doesn't make sense to me that most of the proposed solutions are focused on saving the loans. The fact is some of the loans should and will fail," he argued. "Of course, keeping people in their homes is a great thing to do because it helps the homeowners, the communities and investors. But that only works if the homeowner has the desire and ability to make their mortgage payment."

Furthermore he believes borrowers who do not have the ability or ...