Subprime, Exotic or "Crap?" Mortgage Industry Lingo

Former Credit Slips guestblogger Max Gardner is always trying to understand the real mechanics and economics of mortgage servicing. At one of his infamous bootcamps, he had an employee at a now-deceased mortgage servicer share an insider’s perspective on default mortgage servicing. The employee used some terms of art that are pretty revealing of the serious problems in the mortgage industry. For example, servicing technicians who have to load a new set of subprime or Alt-A loans into the system call those loans “Crap of the Crop,” because even on arrival at the servicer all or almost all of the loans already have major problems such as incomplete documentation, existing defaults, etc. Another popular term is “scratch-and-dent” loans. Quite a bit more colorful, then “subprime” isn’t it?

The explanation for why homeowners can’t get reliable answers on loan modifications is that the default servicing technicians are “cab drivers,” when successful HAMP and other loss mitigation programs would require “cup drivers” in NASCAR parlance. The servicing industry doesn’t care much for “CRAMP,” their term for Hope Now and HAMP, which the former employee described as a vehicle designed for an 8-lane Interstate running on a two-lane country road. And those qualified written requests that consumers can use to get information on their mortgage loans? Those QWRS are “Quite a lot of Written Regurgitated S**t” because most consumers won’t know what to do with the information that the system spits out in response to the request. Depressing that the best legal tool consumers have may be aptly described with such acronym. If there is a bright spot here, it’s that folks like Max who are holding the industry’s feet to the fire are making a difference. In fact, Max got his own term. A “BCA” is a boot camp attorney, whose request means a lot of work and trouble for the unlucky servicing tech who gets such correspondence.

Comments

[German Salazar]

Katie, I will renew my invitation to you to come spend a day or a week at our default servicing operation. What you will find is the polar opposite of what your post describes.

We deal with borrowers in distress; accordingly, we train our staff to deal with their needs and to assist them to keep their home in any way possible. There are, obviously, some cases in which this isn't possible, but they are handled with the same level of professionalism, care and dignity as the others.

Notwithstanding popular perception to the contrary, we are in the customer service business, because it is only though paying attention to the customer's needs that we are able to succesfully resolve delinquent loans and thus give our investors a reason to bring us more business. As a final note, I would gladly compare the skills of our servicing staff to those of any other servicer; default servicing calls for the highest skill level, not the lowest, and we are diligent in seeking, training and retaining the best possible staff.

[Patches]

You can't blame us for being a bit jaded, especially for those of us who see these problems 5-10X a day. I does not take a rocket science mentality to see patterns with that kind of volume.

[Mike Dillon]

OK.. I've held off asking for 48 hours. Mr. Salazar works for whom?

[Mike Dillon]

Regardless of which default servicer employs Mr. Salazar he makes a very astute statement.

"Notwithstanding popular perception to the contrary, we are in the customer service business, because it is only though paying attention to the customer's needs that we are able to succesfully resolve delinquent loans and thus give our investors a reason to bring us more business."

With that said, one only needs to contemplate who Mr. Salazar's *customers* are. Merriam-webster.com defines "Customer" as "one that purchases a commodity or service." http://www.merriam-webster.com/dictionary/customers

Lest anyone forget, individual borrowers do not have any say with regard to their "relationship" with a servicer, default or otherwise. A borrower cannot simply choose to terminate a business relationship with their servicer. In order to terminate such a relationship, a borrower needs to somehow pay the outstanding note being serviced in full or be foreclosed upon. There simply are no other choices.

There ARE various methods that a borrower can employ to satisfy a note. IF a borrower has the financial ability, they can pay the note in full and be done with the servicer OR they can refinance the note and POTENTIALLY terminate the business relationship with the servicer. In doing so, the borrower may still end up having to do business with the same servicer. There simply are no guarantees.

The bottom line is that, as Mr. Salazar brings to our attention, it is the INVESTOR that is the customer base for a servicer and not the BORROWER.

[Patches]

You think servicers can follow Chases example of hiring 1200 servicing agents.

http://www.msnbc.msn.com/id/33832187/ns/business-us_business

That said: I was working on a Mortgage Mod for a 13 client and the Servicer sent (US) a request to have it approved by the Bankruptcy Court. What I needed to know was what was I having approved? The "Special Forbearance" agreement or the Mod under Hamp? Apparently the debtors were required to pay a "certain" amount for 3 months and then they were going to "review" for qualifications under HAMP. Kind of like a trial period or something..???... To "see if they really can make the payments" is what they said. It is then (and only then?) that they were going to refer to underwriting to consummate the deal. Kind of weird but ok. When I call them to ask a few basic questions (that I have to know in order to have it approved...ie. where the heck is the actual contract that I am having approved?) the bk dept had to refer me to loss mitigation. While "in" loss mitigation the "agent" says she cannot give me any information about the deal whatsoever! WTH? I said "you sent us this letter" I ask her "then just answer this "general" question". When I posed the question as generically as possible (something like "when you ask an attorney to obtain permission from BK court pursuant to these "general" terms and they have a question to be answered and they call you for it how are they supposed to get that info?", she then said she could not answer it because that was our clients actual situation. Huhhh?

Send me back to the BK dept. please!

Really? What good is loss mitigation? Oh...I forgot to "serve their clients".....

[Mike Dillon]

That 3 month "trial period" is fairly common from what I'm hearing, Patches... Likewise with the "special forbearance" . And contrary to Congressman Franks' vehement objections, borrowers are apparently STILL being required to forfeit their legal rights in order to "qualify" for loan mods of any kind.

I just watched a local, recently divorced school teacher/mother of 2 now in college walk away from her home of 16 years b/c Ocwen strung her along for 4+ months before telling her that she didn't qualify for a loan mod. This despite assignments filed at the county registry being completely and totally fraudulent. MERS was also involved and apparently MERS was somehow associated with the actual FC auction despite Scott Anderson MERS VP/Ocwen employee assigning the note from Gateway (if I remember correctly) to Ocwen REO Trust (again if I remember correctly) over a year ago.

At SOME point this carp has just got to stop... Maybe if this Alston v. Countrywide/Balboa (Alston v. Countrywide Financial Corporation, et al., No. 08-4334, 2009 U.S. App. LEXIS 23822 (3rd Cir., October 28, 2009)) class action for kickbacks continues to roll along http://www.ca3.uscourts.gov/opinarch/084334p.pdf it will help the overall process. Which reminds me that I need to get in touch with plaintiffs' counsel as I have a document that might help them...

[Martin]

What is not mentioned here is the LOAN MODIFICATIONS ARE NOT OCCURRING ANYMORE after Countrywide was sued by a distressed MBS trust. They were sued and won on the grounds that Countrywide was violating their Pooling % Servicing Agreement.

Servicers are committing Fraud on the Court everyday via MERS and the Limited Signing Authority trick. Poor homeowners are walking away when all they have to do is put up a fight in Court, demand Due Process and Discovery and not listen to ignorant attorneys who profit from those in hardship.

Loan modifications are not "trial period" payments, look at the document...they have it in writing that the trial payment is not a modification, it goes into an escrow account, it does not prevent foreclosure....its a parlor trick, aimed to milk as much extra money from a struggling borrower before the inevitable default, and as they push these borrowers further into default, they collect HUGE servicing fees. They have a clear conflict of interest and should be held in Contempt and brought up on Criminal Charges to Defraud homeowners.

[Fraud Guy]

Thanks, Martin. I am in month 5 of the 3 month trial period on my Countrywide modification. Paperwork to finalize the new payment due any day now.

[Mike Dillon]

Too bad the borrowers that make up the trust can't sue when a servicer violates a PSA, Martin. Oh wait... That would then mean that the borrower was the customer... How silly of me....

[Patches]

So I read the comments (great stuff.... really!) and I got to thinking. So people are now instead of being offered a loan mod under HAMP are instead being funneled into a "Special Forbearance Agreement" BEFORE they are even considered for a Loan Mod under HAMP. Even if they otherwise qualified? If a Mortgage Servicer gets these debtors into a "Forbearance" and that Forbearance brings them current, then won't that disqualify them from a Mortgage Mod with lower interest, Capitalizing, etc....???? Does that promote that "limbo" status we have all been talking about?

Anyhoo, I have to get it approved by the BK judge first so they have to produce a contract and you know I will be combing through that crap! This prerequisite sh....stuff is messed up! (I really think that cussing would be an appropriate way of ending this post) I will not, out of respect for Authors of this blog.

[Mike Dillon]

Patches, just make sure that you confirm that whomever you're dealing with on behalf of your client has legal standing to be entering into any negotiations with you. Period.

http://www.nytimes.com/2009/10/25/business/economy/25gret.html?_r=1

"One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order."