Ocwen Financial Corporation, a servicer of sub-prime mortgages,
is among the first servicers (if not the first) in the country to
begin executing loan modifications under the U.S. Treasury
Department's new Home Affordable Modification Program. The
expansive initiative, the contractual details of which are still
being developed, is designed to help three to four million
distressed homeowners avoid foreclosure by reducing their monthly
mortgage payments.
Even though the form servicing contracts have not yet been
provided, Treasury invited servicers ready to adopt the Program to
do so given the exigencies of the foreclosure crisis. Ocwen was
able to very quickly adapt its already robust modification
initiatives to be compliant with the government's Program because
the company's Home Retention Consultant staff is enabled with a
highly automated, scalable loan servicing platform.
Said Ocwen Chairman William C. Erbey, "We're proud to be able to
aggressively implement the President's plan, which we support and
are committed to helping make a success."
In a letter to President Obama, Mr. Erbey wrote, "On behalf of
Ocwen Financial Corporation, I applaud you, Secretaries Geithner
and Donovan and your economic team on the adoption of... a sweeping
loan modification program to assist homeowners with unaffordable
mortgages and prevent avoidable foreclosures. We share your view
that loan modifications are the key for a lasting solution to the
daunting foreclosure crisis--a crisis that lies at the very heart
of our nation's economic problems and threatens millions of
families with the loss of their American Dream--their home. We
fully support your new Plan and will work hard to help make it a
success."
Ocwen's President Ronald M. Faris added, "We were well
positioned for a vigorous launch of this new government Program.
Since the outset of the mortgage crisis, we have increased key
staffing by over 65 percent. Our modification processes required
very little tweaking to comply with Program guidelines."
Treasury's Program covers mortgages that are in default, or in
imminent default, within the FHFA conforming limit of $729,750 on
owner-occupied homes. Participating servicers must reduce monthly
payments on those loans to no more than 31 percent of the
homeowner's monthly gross income so long as the modified loan
provides more cash flow to the loan owner than what would be
realized in a foreclosure. The reduced payments are to be achieved
through interest rate reductions, extended amortization terms
and/or principal forbearance or forgiveness. Servicers will receive
an up-front incentive fee of $1,000 for every modification under
the Program, plus a $1,000 success fee for each year that modified
loan stays current, for up to three years. Borrowers receive a
principal reduction of $1,000 per year for staying current for up
to five years.
"The Program guidelines are very similar to the customized
modification approach we had already adopted," Mr. Erbey said. In
an appearance at a Congressional hearing in February, he explained
that "Loan modifications crafted in this way are consistent with
our contractual obligations and result in a win/win/win solution
for all involved. The homeowner keeps their home; the loan investor
avoids a substantial loss; and the loan servicer retains the loan
in its servicing portfolio. Since the inception of the crisis, we
have saved over 90,000 homes from foreclosure." He also pointed out
that an industry study by Credit Suisse showed that, for investors,
"Ocwen's loan modification program generates the highest cash flows
by any servicer on 90-plus days delinquent loans--an amount that is
twice the industry average."
Said Mr. Faris, "We particularly like the 'imminent default'
feature of the Treasury Program guidelines. Not having to wait
until a homeowner is several months behind permits the servicer to
proactively head off a serious delinquency in its incipiency, with
far greater sustainability results. By using this same approach
with our customers, Ocwen's Early Intervention staff was able to
avoid over 9,000 foreclosures last year."
The customized loan modifications that Ocwen engineers have a
re-default rate of 24% after six months, compared to an industry
average 41 percent for loans serviced for third parties according
to the most recent report issued by the OCC and OTS.
Over the past 10 years, Ocwen has invested more than $100
million in designing and refining its REALServicing® and
REALResolution systems. The technology uses artificial
intelligence, rules-based systems, scripting engines and net
present value cash flow algorithms to enable Ocwen to apply common
elements quickly across a range of modifications, while still
allowing for an analytic approach to individual loans. Ocwen has
also established a Psychology Department, staffed with academics,
to help the company's loan analytics experts integrate behavioral
sciences into decisioning models. "The goal here is to remove
variability from key processes and make interactions with
distressed customers more effective so we can reach successful
resolutions faster. The scalability of our technology also allows
us to take on many multiples of the volumes of delinquencies we
have already cured in our portfolio," Mr. Erbey said.
For more information, visit www.ocwen.com.
