PERSON OF THE WEEK: Unity Financial Services’ John Scroggins On HAM, HVCC And REO

s week, MortgageOrb caught up with John Scroggins, CEO of Unity[/b] Financial Services, to discuss the government's loan mod program and servicers' strategies for boosting capacity. [b]Q:[/b] Mortgage servicers are slowly announcing their implementation of Making Home Affordable modifications and refis. What's your take on the administration's program? Is it too narrowly focused, or does it miss the mark altogether? [b]John Scroggins:[/b] While the Home Affordable Modification Program is a decent start, I do not think it goes far enough to address the necessary issues that we are facing today. Many of these borrowers who technically qualify for a modification are laden with other debt. Borrowers in this country are addicted to debt and addressing only mortgages will not solve the problems that many of these borrowers face. There is no question that neither the government nor the mortgage industry can be expected to remedy this country's debt addiction. Nevertheless, helping borrowers address their other debt issues is going to help these borrowers free up cash flow, which will facilitate the borrowers' retaining their homes. Furthermore, the program pays for performance only. This incentive encourages servicers to perpetuate the affordability problem by placing people into loan modifications or refinances when they technically cannot afford them. As difficult as it is to hear, there are many borrowers who need to move from their present homes into more affordable homes. If the servicers do not look past the incentives, they will cause additional problems for these borrowers in the name of helping them. [b]Q:[/b] What are your recommendations for servicing shops that are struggling to ramp up capacity in light of tightened purse strings? [b]Scroggins:[/b] It is physically and economically impossible for servicers to accomplish the governmental goals without outsourcing. Servicing companies are inherently built for a high number of loans per employee, so they have consistently relied upon outsourcers to fill gaps in their operations, and this was before the tremendous influx in delinquency volume. I advise that servicers not wait any longer to begin hiring outsourcers to assist with all aspects of their home retention/loss mitigation strategies. The servicer should develop a strategy that is more dynamic than loan modifications en masse. The only decisioning metric that is being addressed is the net present value equation. The cost of this decisioning is not taken into consideration, though it is a real cost to the servicers. If they are going to have to touch these files once, they need to make the right decisions the first time. Therefore, they need to build a strategy flow that includes data assembly on the borrowers, their loans, and their homes. They need to use predictive analytical tools to determine the best execution strategy. They need the borrower contact, the data collection, the underwriting, the fulfillment, the counseling and the debt negotiation on the borrower's other debts. These are all components that must be considered in building a thorough strategy for solving this default dilemma. Servicers are neither trained nor staffed in these areas. There are capable outsourcers in each of these areas, but there are not many, if any, outsourcers who are skilled and staffed for all aspects of this strategy. Therefore, it is key to make certain that the companies you choose for each of these areas can and will work together to create a streamlined workflow for the servicer. [b]Q:[/b] There seems to be a push toward turning troubled borrowers into renters of the properties in which they live. Do you think this approach will gain momentum, and what is its potential benefit for institutions that are carrying large volumes of REO? [b]Scroggins:[/b] It is important that we continue to do everything reasonably possible to keep people in their homes. Not only does that help the homeowner, but it also helps that homeowner's neighbors if the home is not foreclosed, as areas with high foreclosures only drive down the prices of the surrounding properties. This market will not recover until home prices stabilize. The viability of the renter program depends on whether the fair market rent is substantially lower than the monthly mortgage payment; otherwise, the borrower most likely cannot afford the rent payment either. In some markets, this might be a workable solution when coupled with the opportunity for the borrower to buy back the home when capable to do so. In most markets, lenders are unable to sell their REO properties in a reasonable amount of time. With the renter program, they can quickly establish cash flow on the property while they wait for the market to turn around. With a rented property, the home would presumably be more marketable and demand a higher price, so the lender's loss would be less. Though renting the property requires significant administration, the private sector vendors are responding quickly to provide these outsourced services to clients. [b]Q:[/b] As the effective date of the Home Valuation Code of Conduct has come and gone, what are your predictions for how the revised code will impact lenders and servicers? Do you believe the new HVCC will accomplish its intended goals? [b]Scroggins:[/b] Under the HVCC, lenders are required to certify, represent and warrant that the appraisal was obtained in the manner required by the code. If lenders breach this representation, they are subject to suspension or termination from selling loans and potential other liabilities. The lenders are also be required to perform quality control tests that will add additional burdens and costs to the process. Furthermore, we will likely see that home prices continue to fall as HVCC is implemented. Though these burdens are difficult in the short term, I believe it is a necessary step to stabilizing the housing market and returning to the fundamentals of lending. The revised code will help reduce appraisal fraud in a significant way, so I do believe it will accomplish its intended go