Robert Smiley, an executive vice president with U.S. Bank Home Mortgage, oversees a multibillion-dollar servicing portfolio consisting of nearly 1 million prime mortgages. When Smiley last connected with Servicing Management, back in October 2007, he noted that his organization's mortgage delinquency and default rates were up slightly, and loss mitigation efforts were cranking at full speed. Prime loans, it appeared, were not entirely immune to the mounting credit crunch and tumbling real estate market.
During this week's conversation with MortgageOrb, he confirmed that U.S. Bank mortgage defaults peaked around December – but noted that the organization has since experienced loan-performance improvement in the default arena.
That's correct: Improvement. What happened?
Q: Can you characterize recent trends in your default servicing portfolio?
Smiley: Starting in January, we saw a line being drawn – loans were not going into the foreclosure bucket, but staying in the seriously delinquent bucket. Then in February, we saw a drastic drop in our delinquency rate – in March, it dropped even further. [A 55 basis-point decrease from January to February, and another 12 basis-point drop from February to March.] What we also saw for the first time, in March, was an improvement in the ‘serious’ category. We're seeing results now in loans coming back into the current ranges [current or in the 30-day delinquency bucket].
Q: What spurred these improvements?
Smiley: A lot of this is attributable to a step-up in loss mitigation. Mainly, Fannie Mae and Freddie Mac have been making changes in their foreclosure-prevention options. Fannie Mae, for example, has its HomeSaver Advance program, and we've seen an acceleration in loan modifications. We're finding a group of borrowers that might have been excluded at one time because they had a failed modification, but now we're looking at those [cases] twice and approving a second modification.
Also, for us, there has been an increase in activity in two primary areas: our default assessment team – which is positioned between our loan counselors and our true loss mitigation staff – and, of course, in loss mitigation.
We've been doing more with housing counseling agencies to help educate borrowers, as well as more targeted solicitations – trying to get to borrowers, rather than them having to come to us. We've been throwing quite a bit of internal resources into [these initiatives] and used some outside resources to get in touch with people.
I'm not sure that any one strategy works the best, but we're finding that a combination of them all has improved things.
Q: Anything else of note?
Smiley: If the market improved enough – if this glut of housing inventory would move forward – that certainly would help all around. But I'm a little surprised about the higher number of short sales we're doing. Right now, houses at the right prices are moving. A lot of them are fitting the [short-sale] profile and program.
Also, bankruptcy rates rose dramatically before the new legislation [the Bankruptcy Abuse Prevention and Consumer Protection Act] and then came down. But since the end of the year, bankruptcies have risen, and I expect that to continue. Personally, I believe a lot of homeowners are right on the fence, living week to week.