In the February 2007 edition of Servicing Management, the cover story asked a profound question: ‘Is the industry at risk of being tattered by significantly increased delinquent loan volumes?’
It is now December 2007. Eleven months have passed, and I must admit: The bottom fell out very, very quickly, at least in the nonprime space. Most of the commentary from servicers in that February cover story addressed ‘a confluence of factors’ that had converged and begun challenging the overall health of servicing portfolios. The writing was on the wall, but the message wasn't quite clear.
Eleven months ago, things didn't seem so dire. Larry B. Litton Jr. acknowledged that Litton Loan Servicing was experiencing a ‘slow’ increase in delinquency rates and noted that the company was preparing for the worst. Ocwen Financial Corp.'s Michael Linn said the company hadn't experienced a ‘significant increase’ in the number of nonperforming loans in four years.
Today, everyone in the industry knows that the nonprime lending industry is – in a word – sunk. When investors' appetites for nonprime securities disappeared, so did the flow of capital. If, when or how this vacuum will be refilled is unknown.
What's interesting is that nonprime servicers haven't disappeared. Not quite. They're out there, mopping up the mess, more or less unavailable for public discourse. The corporate PR engines have largely corked the free flow of information while the nonprime shakeout takes full shape. Many of my e-mails and phone calls haven't been returned.
But alas, some servicers cannot be silenced so easily. I've been fortunate enough to speak with some subprime-servicer contacts over the past few months – off the record, of course – and you might be surprised to hear that familiar names and faces are still circulating.
A conversation usually begins like this:
MB: ‘Hello, John Doe! You busy?’
JD: ‘Oh yeah. It's nuts.’
MB: ‘I see you still have a job.’ (Most delicately and lightheartedly.)
JD: ‘So far.’
In fact, the vast majority of these contacts are exactly where they were six months ago – or a year ago, or three years ago: in the office, doing what they do best. By all accounts, these servicers are firmly in place at a time when they are most needed.
And while I surely understand why many servicers cannot talk to me during this sensitive interval, it's unfortunate. Someone has to handle all these subprime loans, and there is no better time to discuss how they're being handled. Subprime servicing organizations that are somehow managing portfolios in the current climate can teach the entire industry something about loan administration.
That said, I hope to hear from many of you as 2008 unfolds.
– Michael Bates, Servicing Management