Media Alert: Ray of Hope in Subprime Crisis; Leading Mortgage Loan Servicing Company Sees Delinquencies Flatten or Decline.
WEST PALM BEACH, Fla. -- One of the nation's leading subprime mortgage servicers reports that delinquencies on the subprime mortgages it handles flattened or declined this summer, in large measure due to its technology-enhanced loan modification program.
The finding represents a ray of hope in the subprime crisis and suggests a practical approach to keeping homeowners in their homes and protecting lenders' and investors' income.
According to Ocwen Financial Corp. (NYSE:OCN), a leading servicer of subprime mortgage loans, delinquency rates in every category (60, 90 and 90+ days) have either declined or remained flat over the last three months. This is the first sign of stability in Ocwen-serviced loans since the inception of the subprime crisis in 2007. Ocwen's portfolio covers a significant portion of the subprime market - through its subsidiary, Ocwen Loan Servicing, LLC, the company services approximately 350,000 mortgages, about 85% of which are subprime.
"While it's still too early to signal an end to the subprime mortgage crisis," says Ocwen's president Ronald M. Faris, "this represents a welcome reversal of spiking delinquencies."
Loan Modification Program Prevents Foreclosures, Creates Win-Win Solutions
According to Mr. Faris, Ocwen's success is due in large part to a sophisticated approach to modifying loans and a commitment to loss mitigation - and that, in turn, benefits homeowners, lenders and investors. "We believe that by preventing foreclosure, we create win-win solutions for everyone - the homeowner is able to stay in the home and lenders and investors continue to receive income."
A loan modification changes the terms of a loan and reduces the overall amount the borrower has to pay - for example, by reducing interest or principal payments. Borrowers at risk of default can also be helped by forbearances and payment plans, which change the payment schedule but do not change the total amount of the loan. Ocwen uses all these approaches as needed to prevent foreclosure.
From the onset of the subprime meltdown, Ocwen has undertaken proactive initiatives to help homeowners in distress - the firm increased its home retention consultant staff by 65 percent over the past year.
58,000 Foreclosures Prevented
"Since August, 2007 we have achieved loan workouts avoiding foreclosure for over 58,000 homes," said Margery Rotundo, Ocwen's Senior Vice President in charge of loss mitigation operations.
"Assuming the average household we serve is 3.5 persons," Ms. Rotundo continues, "that means in just one year we've helped keep the roofs over the heads of 200,000 Americans - the equivalent of a mid-sized city like Richmond, Virginia or Modesto, California. We are very proud of our contribution toward the preservation of home ownership for so many families."
Loan Modifications Protect Home Ownership and Investor Interests
Loan modifications, or "mods" as they are called in the servicing business, actually benefit both the homeowner and the loan owner, typically a securitized mortgage trust, Ms. Rotundo explains. "Properly implemented mods benefit investors in MBS trusts in transforming a non-performing asset into a cash flowing asset again. Foreclosure is the worst alternative - the borrower loses the home, and there is almost always a net loss to the trust on the foreclosure sale. We design mods to achieve the maximum net present value of the loan asset for the investor while saving the home for the borrower, truly a win/win solution."
Technology Makes Custom Solutions Possible
Robust technology is the key to Ocwen's success with loan modifications. The process is highly particularized, and must be tailored to the specific facts and circumstances surrounding the homeowner's financial situation, the terms and conditions of their mortgage loan and the current value of the property. Through proprietary technology incorporating artificial intelligence, rules-based systems, scripting engines and net present value cash flow models, Ocwen is able to determine whether a loan modification would result in cash flow to the investor that exceeds the likely liquidation proceeds from a foreclosure and the homeowner's willingness and ability to stay current on the new modified payment. In designing the optimal loan modification that achieves the highest net present value, Ocwen utilizes interest rate reductions, principal forgiveness, extensions to the amortization period or a combination thereof. The technology allows Ocwen to apply common elements quickly across a range of modifications, while still allowing for an analytic approach to each individual loan.
Support for HOPE NOW and Other Programs
Ocwen has been an active supporter of government and consumer activist sponsored initiatives to preserve home ownership. Ocwen endorses both the HOPE NOW Alliance servicing guidelines for foreclosure prevention as well as the loan modification program recently announced by the FDIC for mortgages serviced by IndyMac Federal Bank. "The FDIC is setting a useful precedent for the industry," Mr. Faris said. "We have previously adopted many of the same features in the IndyMac mod program and are incorporating other aspects as well." Ocwen also works with various non-profit groups on foreclosure prevention and homeowner outreach projects, including ACORN, East Side Organizing Project, National Council of Laraza, South Brooklyn Legal Services, National Fair Housing Alliance, Homeownership Preservation Foundation, National Training and Information Center, Neighborhood Assistance Corp. of America, Homes on the Hill, St. Ambrose Housing Aid Center, Neighborhood Housing Services of Chicago and Dominion Community Development Corp.
Ocwen Financial Corporation is a leading business process outsourcing provider to the financial services industry, specializing in loan servicing, mortgage fulfillment and receivables management services. Ocwen is headquartered in West Palm Beach, Florida with offices in Arizona, California, Florida, Georgia, Illinois and New York, and global operations in Canada, Germany and India. Utilizing our global infrastructure, state of the art technology, world-class training and six sigma processes, we provide solutions that make our clients' loans worth more. Additional information is available at www.ocwen.com.