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Electronic mortgage talk.

A huge electronic conversation about mortgage topics is now going on over a nationwide network. The cost of logging on and and leaving your two cents' worth on the bulletin board is minimal.

WHEN NANCY HARTSELL, MANAGER OF THE FOREclosure department of Glendale Federal Bank in San Diego wanted to know whether or not other banks and mortgage companies charged a fee for postponing a foreclosure sale to allow an escrow to close, she didn't pick up the phone or wait for the next industry conference. She turned to her computer.

With a few strokes on a keyboard and the cost of a local telephone call, she had posted her query on an electronic bulletin board subscribed to by more than 200 mortgage companies, attorneys and other service providers. The bulletin board is part of the USFN (U.S. Foreclosure Network) Connection, an on-line interactive service accessed through the well-known Prodigy network. Prodigy is the most popular of the on-line services that allow a person with a PC and modem to tap into data bases maintained in Prodigy's central computer or to communicate with other users.

Over the course of the next few days, following Hartsell's query, a sort of floating conference took place coursing through memories and modems across the land. It became a sort of computer-based chain letter that traveled through the industry and sparked responses. And when Hartsell logged back on to her computer, this is a part of the discussion that she and everyone else in the network saw:


From: G. Foreclosure Dept.

Subject: Extension Fee

Question: Do any of the mortgage companies charge an extension fee for postponing a foreclosure sale to allow an escrow to close? Any responses will be greatly appreciated.

Sincerely, Nancy Hartsell, Manager, Foreclosure Dept.

Glendale Federal Bank, San Diego, California

To: G. Foreclosure Dept.

From: Russell Fayer |attorney with Fayer and Greenberger, Hempstead, N.Y.~

Subject: Extension Fee


We have not seen the imposition of an extension fee in such a case, but what we do on behalf of clients is to collect the cost of readvertising the sale from the parties, before we consent to adjourning the sale. If the closing does not take place, the client will not incur the additional cost of readvertising. Also, in the event the closing takes place, interest is collected to the date of closing.

Russell Fayer

U.S. Foreclosure Network (N.Y.)

To: Russell Fayer

From: M. Mortgage Company |Vicki Gilhooly~

Subject: Extension Fee

Mellon Mortgage Company does not charge a "fee," however, we do allow our attorney, depending upon the state laws and loan type, to assess an additional fee. We have also, upon occasion, called for a "down payment" of sorts, |such as~ all the outstanding attorney fee|s~ and cost|s~ of foreclosure. So if a bankruptcy is filed, for example, we don't have to wait to get our advances back. We are contemplating assessing one|an extension fee~ in 1993. Again, this will be dependent upon the loan type and state.

Vicki Gilhooly, |assistant vice president, loan administration, Mellon Mortgage Company, Houston, Texas~

To: G. Foreclosure Dept.

From: Robert Frappier

Subject: Extension Fee

In Texas, if a foreclosure is postponed pending a possible closing by the debtor, it is standard practice in this state to require that the debtor pay additional fees and costs associated with any postponement. Vicki's practice of collecting these fees and costs in advance of the closing is an excellent idea and the method that I recommend. Any postponement of a scheduled sale will generally require the approval of the investor and the insurer/guarantor and, therefore, I would recommend that the servicer obtain approval for these additional fees and costs when requesting their postponement.

Bob Frappier |attorney, Texas~

The discussion went on with loan servicers and attorneys dropping into the conversation at their convenience, until Hartsell had more information than days of telephone tag would have produced. The conversation took place on the USFN Connection, a relatively new electronic communications medium created exclusively for the mortgage banking industry in conjunction with Prodigy Consumer Services, New York City.

Prodigy Consumer Services is an on-line computer service founded in 1987 as a joint venture by IBM and Sears. It is the nation's largest on-line service with more than 1.8 million subscribers. Through PC (or Macintosh computer) and modem, hundreds of thousands of Prodigy users connect everyday by telephone lines to the central Prodigy computers to review a variety of information, send or receive electronic mail (e-mail) or interact on the Prodigy electronic bulletin boards.

Prodigy has brought the on-line industry to the masses through an intuitive graphical interface, a unique pricing structure and heavy marketing. Prior to the emergence of Prodigy, on-line services were the home of affluent computer "techies" who connected to a variety of homespun and commercial boards based on archaic text-driven commands. Unless you knew the particular command (e.g., "write," "read," "scan," etc.) or desired to learn a particular menu structure, the on-line world was a formidable place. To make matters worse, every moment dedicated to learning the on-line system translated into cost, whether it be long distance telephone charges or the per-minute charges of the larger on-line services. These limitations made the on-line world the province of only the select few.

Investing more than $1 billion, Prodigy sought to create a new on-line world. It attacked the archaic text-based systems through the development of a colorful and intuitive graphical user interface. Moreover, Prodigy abolished the reliance on long-distance telephone charges or per-minute fees. Instead, Prodigy opened with a flat rate per month, irrespective of how long one was connected to the system (not unlike the pricing on cable television) and provided a local telephone number for connection from almost 90 percent of the country.

Prodigy's ability to lower the on-line cost is a direct result of advertising that occurs on the system. The bottom fifth of most Prodigy screens is an advertisement. A user can read the ad or can "look" for further information. The more detailed screens provided by the advertiser often lead to screens allowing for the ordering of products or services. Prodigy charges for the ads and also takes a percentage of all matters ordered on-line.

Prodigy's marketing is equally innovative. From their prime time television ads ("You've got to get this thing") to ads in leading magazines and computer journals, Prodigy has reached a large segment of the modemed public. In addition, it is hard to find a personal computer sold with a modem that does not already have the Prodigy access program pre-installed on the hard disk and ready to run. In short, Prodigy has successfully captured the new computer user who wants to buy a computer, plug it in and start playing.

In 1991, Prodigy began to explore the possible expansion of its services to special interest groups (SIGS) who wanted their own private section on Prodigy to communicate with one another. About this same time, the U.S. Foreclosure Network, an organization of about 100 attorneys, trustees and associated vendors who focus on foreclosure, bankruptcy, eviction and related legal and other services, was looking for a way to connect its members by computer with the industry at large.

Alan Wolf, a partner in the California law firm of Gordon & Wolf, and chairman of USFN's Automation Committee, says the organization "was looking for a means to allow members of the mortgage banking community to meet electronically and exchange ideas on the industry. We needed something simple and inexpensive, yet powerful. Prodigy proved the obvious choice."

After months of negotiation, Prodigy allowed the USFN to create USFN Connection, a private section on Prodigy and the only section dedicated to the mortgage banking industry. There is no extra fee for accessing USFN Connection. A user merely pays the usual Prodigy fee of about $15 per month and asks USFN Connection to give the user's identification number access to the section. Mortgage bankers and associated vendors may join the section.

Currently, more than 200 mortgage bankers, attorneys, consultants and vendors regularly use what Wolf describes as the USFN's "interactive electronic newsletter." Typical of any newsletter, there are articles on important industry topics, a listing of mortgage banking events and information on members of the network and clients. However, unlike most newsletters, the information changes almost daily, as news events sweep the industry. Also, USFN Connection allows for interaction between users either by private e-mail or bulletin boards directed to the mortgage banking industry.

On the bulletin boards, members regularly discuss important industry issues under organizational topics that include foreclosure, bankruptcy, claims, Fannie Mae/Freddie Mac, HUD/VA and general counsel. A question relating to a topic is posted on the electronic board for all to see, and members reviewing the questions freely respond where they can add to the conversation. By reviewing the question and the responses, one gains valuable insight into how others in the industry handle particular problems.

USFN Connection has grown steadily since its creation roughly one year ago. David Nielsen, director of the U.S. Foreclosure Network says, "One of the keys to the success of USFN Connection in attracting users has been the association with Prodigy. The Prodigy system is graphics-based, not text-based, so the user is prompted at each step with clear instructions as to what the options are. It's just incredibly easy to use. We are currently adding one or two users a week."

Russell Fayer, a New York attorney and chairman of the USFN Connection Subcommittee, adds that many mortgage bankers are already Prodigy users and are delighted to learn that there is a private section on Prodigy set up for the mortgage banking industry. As Fayer explains, "They add USFN Connection to their Prodigy 'path' at no additional cost and are able to stay right up-to-date on the industry." Because approximately 1 in every 150 Americans is already a Prodigy user, USFN Connection holds great promise as more and more Prodigy users, who are also mortgage bankers, learn about this new electronic meeting place.

Charles Torres, assistant vice president for loan administration at United California Savings Bank in Long Beach, California is an avid user. "The news updates are extremely timely and useful. I could be reading The Wall Street Journal and it has already been on the system. It's absolutely old news when I read it in the servicing magazines."

When the U.S. Supreme Court's recent decision prohibiting so-called "cram-downs" of lenders in Chapter 13 bankruptcy cases came down, Torres saw the news first on USFN Connection. "I was able to immediately alert the board of directors of my institution."

A flow of ideas

The bulletin board feature of the system is designed to facilitate the back-and-forth flow of ideas that would occur in a live conversation. Because the messages are stored, anyone with an approved ID can enter the bulletin board and review the conversations in the topic area of interest. "Communications within our industry are key, and without having to play telephone tag, I can keep up-to-date with other services," says Torres.

The system also allows for private e-mail. Torres uses the e-mail to send messages to his East Coast attorneys after they have left the office for the day.

Topics of bulletin board discussions have included the considerations (tax, legal and so forth) a lender should weigh when entering into borrower repayment plans; when relief from the automatic stay against foreclosures is effective in a Chapter 7 bankruptcy; reporting lender hazard insurance refunds to HUD; requirements by HUD to notify a former borrower of a delinquency; credit reporting of foreclosures in regard to original borrowers; and procedures for dealing with lost loan files during an audit.

In regard to the lost file problem, Chicago attorney and USFN President Dennis Pierce found USFN Connection particularly helpful. A client who was being audited by Irving Burton Associates, Inc. (IBA) for HUD discovered that it had lost five loan files and asked Pierce for advice. Pierce sent out a message to all users under the claims section of the bulletin board inquiring if anyone had any ideas about how his client could avoid losses.

Surprisingly, a representative of IBA responded that HUD would allow a missing file to be reconstructed. IBA offered to provide a list of the documents needed for the lost file cases. Since HUD would otherwise project interest and expenses and charge it to the client, Pierce's client was very relieved to obtain the file reconstruction information.

Also on-line as users are Fannie Mae, Freddie Mac and the Veterans Administration (VA). USFN Connection representatives are still trying to identify people at HUD, FHA and GNMA to bring on-line.

Mike Drawdy, assistant vice-president and manager of foreclosures, bankruptcies and investor reporting for Weyerhaeuser Mortgage Company, Woodland Hills, California, reports that he is sometimes able to get responses to questions over USFN Connection from people at these agencies who are otherwise very difficult to reach by phone. "It has been very useful. Whenever I come up with a question and I'm wondering what other |mortgage servicers~ are thinking about it, I send it out over Prodigy." For instance, when Drawdy was wondering recently if he could collect property inspection fees from the VA when the loan was reinstated, he posted the question on the bulletin board. The response was from an industry colleague who reported that a VA official had answered affirmatively when asked the same question at the Mortgage Bankers Association of America's servicing conference in San Diego earlier this year. The official said that the VA would soon be issuing a directive as to the reimbursable


As a foreclosure manager, Drawdy is often in communication with the bankruptcy courts, and in California, he can access some courts' docket sheets through an on-line computer system called Pacer. He wanted to know if courts in other jurisdictions had similar systems he could access, so he asked the users of USFN Connection. One user, whom Drawdy didn't know, sent him a response that was six typewritten pages long, listing all the jurisdictions with similar on-line court services. Now, Drawdy can tap into other computer resources that he didn't know existed.

The questions can run from the sublime to the mundane. Currently, Drawdy is waiting for responses to his posted question as to whether property debris removal done during an eviction should be claimed from FHA as an eviction expense or a property preservation expense.

The limitation of the system is that it requires a PC an a modem. But Drawdy is sufficiently impressed that he is going to set up all of his foreclosure department supervisors with the necessary equipment.

E-mail friendships

As in any other community, friendships have developed among users in the electronic community created by USFN Connection, as they trade information on issues of mutual interest. As these relationships developed, some users formed a group to give suggestions about how to improve the system. To USFN's surprise, their first suggestion was to establish non-industry-specific bulletin board topic areas where users could feel free to exchange more personal information. The "Introduce Yourself" topic heading was created to allow a new user to say "hello" to the other users and give some personal history. The "Let's Talk" section allows veteran users to discuss non-industry matters. One member reported on the birth of his child, and the response from other users was electronic cheers. Another user left a favorite poem.

Not unlike a company picnic, this interaction draws the industry community together. Unknown to her, when Terri Donaldson was promoted to associate vice-president in the foreclosure department at Source One Mortgage Services Corporation, Farmington Hills, Michigan, her boss posted the announcement on USFN Connection. "I started getting letters and e-mail from all over the country congratulating me, and I didn't know why," says Donaldson.

Another feature of the system is the news articles that make it a sort of mini-electronic magazine for the industry. Sometimes the articles are short accounts of breaking news, such as an account of the recent decision by the U.S. Supreme Court forbidding cramdowns of lenders in Chapter 13 bankruptcy cases that Torres read and passed on to his board of directors. Other articles are longer pieces. Most are written by attorneys who practice exclusively in the mortgage banking industry.

When Phil Cobb, vice president of foreclosure, bankruptcies and REO for GMAC Mortgage Company, in Waterloo, Iowa, reads a pertinent article on USFN Connection, he will print it and distribute the copies to his default servicing supervisors. Just before the Supreme Court decision prohibiting certain lender cramdowns was issued, GMAC had received several letters from borrowers' attorneys threatening to cramdown GMAC in bankruptcy if it did not agree to renegotiation of the loan terms. Aware of the Supreme Court's decision, Cobb was able to immediately send out letters calling the attorneys' bluff. "The timing was perfect," says Cobb.

Cobb also has used USFN Connection as a pivotal part of a lobbying effort directed toward Fannie Mae. Like many Fannie Mae services dealing with loans in foreclosure, GMAC found that its foreclosure costs for attorneys' fees and the like were often exceeding the amount that was reimbursable under Fannie Mae guidelines. Cobb knew that he would be much more effective in convincing Fannie Mae to change the guidelines if he were not the only petitioner. So via USFN Connection, he put out a call for attorneys and mortgage companies nationwide to provide their comments to Fannie Mae about the prevalence of increased foreclosure costs that exceeded the guidelines. Many wrote to Fannie Mae directly on contacted Cobb. The impact of Cobb's lobbying effort cannot be directly measured, but he may have been at least partially responsible for Fannie Mae's decision to alter its guidelines, allowing for increased reimbursement of foreclosure costs.

For USFN Connection to become the communication medium of choice for the mortgage banking industry (its founders' goal), it will have to attract wider participation by government regulators, as well as larger mortgage companies. This appears to be happening. "I think it's a great idea," says Pam Holland, an assistant general counsel for Fannie Mae, in Washington, D.C., and an occasional user from her home PC. Holland was first a user of the public Prodigy network before being introduced to the USFN Connection.

Ask Dave

Nitin Dave, senior lender representative for Fannie Mae in Atlanta, responds to inquiries about Fannie Mae policy and sends out news of general interest about policy changes over the system. Recently, Fannie Mae increased the amounts of fees that it will reimburse to servicers who pay for attorneys' services in regard to foreclosures and evictions. Dave sent the new fee schedule to USFN Connection, where it was posted in the news section and made immediately available to servicers.

When Fannie Mae set up a 24-hour toll-free hot line for servicers with questions on their foreclosure loans, Dave advertised the new service on USFN Connection. On the hot line, servicers can get the status of their foreclosure loans with Fannie Mae, including such information as whether Fannie Mae has sent out a check for reimbursable fees to the servicer.

When a question regarding Fannie Mae policy is posted on the bulletin board by a servicer, Dave consults with one or two of his colleagues to be sure that this response reflects a consensus on Fannie Mae's position. Recently, an on-line mortgage company asked Dave what the eligibility criteria were for becoming a Fannie Mae-approved document custodian. After carefully reviewing the matter, Dave responded with the complete list of requirements.

Dave also found that he was getting questions on the system regarding custodial accounts set up by Fannie Mae servicers who were servicing mortgage-backed securities pools. It seemed that many institutions had several custodial accounts, sometimes corresponding to the number of pools they serviced. Dave posted the official response on the electronic bulletin board, probably much to the chagrin of several servicers who thought they had been in compliance with Fannie Mae policy. Fannie Mae allows the maintenance of only one principal and interest custodial account, regardless of the number of pools held by the servicer, Dave advised them. Depending on the circumstances, the servicer may open up to four tax and interest custodial accounts. Doubtless, many servicers quietly changed their procedures after seeing the Fannie Mae official position on USFN Connection. Says Dave, "It's really an excellent network, especially considering the cost."

Len Levy, assistant director for loan management at the VA, also likes to tap into the system from his home PC. "If I see anything |on the bulletin board~ that pertains to the VA, I try to give them an answer." Levy notes that the informality of the bulletin board conversation promotes the exchange of information because the participants won't be held to what they say. Levy won't set forth policy positions of the VA on-line, but he speculates that someday there will be an "official" on-line forum.

As Levy sees it, USFN Connection is part of an inevitable electronic marketplace. "Within two years most information with respect to loan defaults is going to be done electronically. Paper is more likely to be lost, so unless you need to create a paper trail, electronics is the way to go."

Levy reflects the consensus view that mortgage banking and particularly loan servicing will be electronically automated in the near future. Having a nationwide network for mortgage banking is an important new development for the industry. The full impact of having such a communications tool is not yet known, but the power of information is legendary. What the industry chooses to do with this important new system is up to all of us. The limits on its use will be set by boundaries of its users' creativity. Soon we may all be on-line.

Roland P. Reynolds is an attorney with the law firm of Gordon & Wolf in Newport Beach, Califonia.
COPYRIGHT 1993 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Reynolds, Roland P.
Publication:Mortgage Banking
Article Type:Cover Story
Date:Aug 1, 1993
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