Troubled Borrower? Meet the "Mod Squad"
A: In a sign of the changing times, this news out of EMC Mortgage Corp. is quite relieving. EMC Mortgage Corp. carries a $78 Billion portfolio of subprime loans and has launched a 50 person team it calls 'the Mod Squad' to spend an unlimited amount of time with troubled homeowners having difficulties making payments. Will it work? Possibly, but it doesn't solve the existing threat of tightening lending standards that I see as a potential threat in postponing any housing recovery across the nation and eventually in NYC; that is if we ever correct.
As subprime woes continue it is refreshing to see EMC Mortgage Corp. step up to the plate and publicly launch their effort to help ease the symptons; however, I don't think it is a solution/cure.
According to Yahoo Finance:
EMC Mortgage Corp., specialist with a $78 billion portfolio of subprime loans -- for homeowners with weak credit -- this week launched a 50-person team it calls "the Mod Squad." Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment.It will be more interesting to see the result of this maneuver and whether or not other lenders will copy it. From the article, I see that "...Regulators will be watching to see how many are successful..."."You can't just run this like a call center; it needs to be run like a counseling center," said John Vella, president and CEO of EMC. Right now, $2.14 billion in mortgages, 2.74 percent of EMC's portfolio, is in default, up from 1.93 percent a year ago.
Lenders have long modified loans for homeowners facing job loss, illness, divorce or a death in the family.
A lender in Houston is already on board. Larry B Litton Jr., the President & Chief Executive of Litton Loan Servicing of Houston, TX states:
"The larger the loss of value and the greater the likely loss will be, the more flexible we are,"..."We may waive past-due amounts. In extreme situations, we may even waive principal, if need be."For the 'Mod Squad' at EMC Mortgage, the team will embark on a 6-city tour with offers of $100 Gift Certificates to Home Depot to attract troubled borrowers to counseling. A great example of an industry adapting to the changing times!
It really is questionable how this ends up helping the nation's subprime problems. While it is definitely a step in the right direction, there has to be much more participation in order for a real effect to take place! Like Litton Jr. said, "That may give the borrower breathing room"...!
UrbanDigs Says: As good as this may sound, it is an industry adaptation to a very significant problem! It is not a solution and it does not ease the threat of tighter lending standards being put in place in the subprime and alt-a world. The threat of tighter lending standards in the prime lending world is still out there and how it all plays out is up in the air. We must keep an eye on this threat and hope that it doesn't result in any significant restriction in purchasing power to prime borrowers. If it does, well, then we will all learn something about real estate cycles!
Comments (2)
The current train wreck unfolding in the sub-prime lending sector provides a good preview as to what will happen to the entire credit-financed bubble economy when the funding dries up. Contrary to the self-serving rhetoric of Wall Street and housing industry shills, the entire mortgage sector is not insulated from sub- prime. In fact, sub-prime is just the tip of the credit iceberg. Beneath the surface lie similar problems in Alt-A and prime loans, where borrowers also relied on adjustable rate mortgages to purchase over-priced homes that they could not otherwise afford.
With the sub-prime market drying up, most first-time home buyers will be unable to buy. Without those ‘starter-home” buyers, the trade-up buyers (most of whom have the ability to make down-payments and are therefore considered "prime borrowers") will be unable to sell their existing homes, and hence unable to trade up. This brings down the entire house of cards. Home prices must collapse, affecting all homeowners, regardless of their credit ratings.
Since home equity has been the principal asset collateralizing that credit, how can consumers keep borrowing and spending when housing prices fall? I heard one commentator on CNBC claim that the U.S. economy was in great shape except for housing. To me that’s like a doctor telling a patient that he is in great health, except for the javelin sticking out of his chest. If housing is going down, there is no way on earth the entire economy does not get caught in its undertow.
Posted by peter | April 4, 2007 6:19 PM
"Home prices must collapse, affecting all homeowners, regardless of their credit ratings."
BUT THEY WON'T....
Posted by Larry Nusbaum | April 4, 2007 7:21 PM