Mortgage Professionals Scrambling to Modify Risky Loans

As foreclosures mount, mortgage professionals are out knocking on doors, sending letters and making phone calls with this simple message for many struggling U.S. homeowners:

They’d rather modify a home loan than foreclose.

EMC Mortgage Corp., which has a $78 billion loan portfolio that includes subprime home loans made to 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.

In an industry that often rewards its workers for getting off the phone quickly, this mortgage team is preparing to speak to just three people a day.

“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, a shocking $2.14 billion worth of bad credit mortgage loan funds, or 2.74 percent of EMC’s existing portfolio, is in default, up from 1.93 percent a year ago.

Many mortgage lenders have long modified home loans for homeowners facing the grim prospects of job loss, illness, divorce or a death in the family.

But these days, with many borrowers across the U.S. struggling to keep up with the rising mortgage payments, mortgage companies increasingly are prodding anyone who’s having trouble making payments for any reason to give them a call.

Critics say that a mortgage lender who made a loan to a borrowers who was not credit worthy with terms that would be impossible for them to meet is now experiencing the consequences.

Regardless, whether a current wave of workouts will merely postpone foreclosures - and delay bad credit home loans hitting lenders’ books - is an open question.

Regulators will be watching to see how many are successful, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s renowned Wharton School of Business.

Loose lending standards followed by lax modifications can merely delay a problem, she said, pointing to the raft of modifications done in the home building business in the mid 1990’s, when easy credit led to a wave of defaults and reposessions.

“If people had known what the [loan servicing] professionals were doing, red flags would have been raised; but by the time people knew what was going on, it was too late,” she said.

Continue reading in the Houston Chronicle …