Our Administrations Failure To Force Servicers To Improve Consumer Debt Relief Results

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LocalNet360-Debt Relief IQ is a unique consumer debt relief portal that automates the way in which consumers manage their credit debt problems and is working with servicers nationwide to improve the way in which they administer programs that help consumers. The current administration, however, has failed to respond to the continued abysmal performance of the large Servicers in implementing programs to keep people in their homes.

I recently spoke to a colleague at one of the Mega-Servicers who shared with me that out of the last 20,000 Home Affordable Modification Program (HAMP) packages sent to homeowners that only 400 of those packages resulted in a completed loan modification. Our firm's analysis of the work-flow processes of the Servicers clearly demonstrates "large service and technology gaps" that explains why only a very small percentage of homeowners have actually benefited from loan modifications.

In fact, the Amherst Securities Group recently released figures showing that 80% of all nonperforming private-label mortgages have not been modified after 12 months and as of Sept. 30, 2010, that the Fannie Mae servicers had completed only 321,800 modifications including 158,800 restructurings that meet Home Affordable Modification Program (HAMP) specifications out of nearly two million note holders believed to be eligible for loan work-outs. Fannie has 60,500 borrowers in HAMP trials, which represents only 6% of its seriously delinquent loans.

This discussion will focus on specific areas of the Servicer work-flow processes that contribute to the "large service and technology gaps," in the way in which loan work-outs are initiated and processed.

The Acting FHFA Director Edward J. DeMarco revealed recently on December 2nd that the, "Servicer's deficiencies undoubtedly reflect strains on a system that is operating beyond capacity and was never designed to handle the volume of nonperforming loans that we are seeing today." He concludes that, "they also represent a breakdown in corporate internal controls and the integrity of mortgage servicing and processing."

Of course, the recent scrutiny of Servicer practices is further exposing Servicer inadequacies; clearly, the sheer volume of delinquent homeowners has put intense pressure on Servicers, including their loan workout efforts. With the John Burns Real Estate Consulting firm estimating that the "shadow inventory" of homes is headed towards 4.7 million foreclosures, it is obvious that Servicers must drastically overhaul their work-flow processes in order to have a fighting chance at creating some head winds against the growing momentum of REO inventories.

‘Right' Party Contact Matters

Servicers use inadequate methods to contact and engage the borrower in order to evaluate whether a work-out can be accomplished. With so many consumers capitulating due to delinquent mortgage, and unsecured consumer debt such as credit card debt and personal lines of credit, a growing number of homeowners simply do not bother to answer their phones to avoid the stress of dealing with high pressure collection agents.

A vast majority of the Servicer's infrastructure and staff is consumed by servicing collection calls, chasing consumers that are delinquent and barraging households with multiple phone calls daily that are generated by automatic dialers.

To be clear, the purpose of these calls is to collect on delinquent mortgage or credit card debt payments, not to offer a proactive approach in helping the borrower understand his/her options. As Director Demarco has clearly stated, Servicers were never prepared to handle the acceleration of nonperforming loans; but after several years of failure it is now time for the Servicers to embrace some new processes and technologies to better manage, track and automate the loan life-cycle.

An affiliate of Debt Relief IQ, Red Rock Servicing located in Irvine California, employs a 'Right Party Contact Model' that utilizes licensed Field Services Agents that make multiple trips to the home and talk to neighbors in order to make direct contact with the actual borrower. When paid for by the Servicer, a real time financial interview is conducted and the homeowner's current income and employment information are fed into an Automated Analytics Engine to determine whether a note holder qualifies for a loan modification; if so, a HAMP Package is generated to be printed and hand delivered to the note holder.

Upon completion, the HAMP package is then checked over for accuracy and completeness by the Field Service Agent (or processing center) then forwarded directly to the Servicer for final approval. In the current Service model so many note holders are simply overlooked as the Servicer possesses no predictable process to ensure the note holder outreach, qualification, delivery, processing of documents and approval for a note holder that would normally receive a completed loan modification if the proper process technologies were in place.

If it is ascertained that the homeowner lacks the sufficient income to meet the basic HAMP qualifications, the borrower must begin to consider his/her other realistic options. Given either eventuality, an aggressive outreach methodology improves contact rates which in turn increase the number of homeowners that will actually attempt and ultimately qualify for a loan modification. In addition, the borrower is more likely to respond positively to other options, such as a short-sale, after an attempt is made by the Field Services Agent to qualify the note holder for a loan modification, even if they do not qualify. The point is that it is the responsibility of the Servicer to contact and engage the consumer which simply is not being done.

Our distressed asset workout program utilizes extensive net present value and waterfall algorithms that can be customized to individual Investor or even program-level specifications, allowing for highly targeted workout programs for every class of distressed assets for the benefit of Investors while also giving the note holder immediate feedback on the likelihood that a work-out can be achieved or whether other options should be pursued such as short-sale to create a dignified exit for the note holder that cannot manage to stay in the home.

Total Debt Matters

Although it is widely accepted that the Servicers have failed to implement loan modifications on any scale that will perform well for Investors of the mortgage notes, when our Field Service Agents make contact with the borrower, in addition to examining the work-out options for the mortgage, they are also exposed to an extensive 'Soft Chapter 13' debt settlement, debt relief program that attacks the major sources of consumer debt competing for the cash flow meant to service mortgage debt namely unsecured credit debt, including but not limited to credit card debt, personal lines of credit, business debt and unpaid tax debt. Although the Servicers do not address the 'total debt' picture for each note holder, Debt Relief IQ's borrower debt relief model has yielded greater secured loan performance by incorporating the total debt service approach, a clear departure from the limited Servicer approach.

Debt Relief IQ is a practical and economical (no enrollment fees, no up-front fees) approach to debt settlement and debt relief. Debt Relief IQ provides a unique approach to settling unsecured credit debt that puts the control in the hands of the consumer by providing a turn-key technology program (automated credit debt portal) that guides the consumer to settle their consumer debt with an easy to use step-by-step process.

In many cases, an unsecured debt settlement approach is required in order to qualify for the HAMP modification as to meet debt-to-income ratio requirements. If a consumer can reduce their monthly unsecured credit debt payments by enrolling in a program that saves the consumer money, that cash can be used to pay the mortgage.

Unsettled, credit debt that end up as judgments or wage garnishments obviously jeopardize the note holder's ability to sustain payments even after a loan modification is achieved. In other words, all of the time and resources dedicated by the Servicer to execute a successful loan modification can be instantly unwound if the Servicer ignores the competing forms of consumer debt, especially credit debt.

For more information on our Debt Settlement programs visit our website: www.debtreliefIQ.com

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Richard Kaye holds a BA from the University of California at Los Angeles and has spent 20 years in the financial services sector, first serving as a registered securities principal. He later expanded his services to include investment banking where he guided company clients with financing, public market listings and institutional sponsorship. Subsequently, Richard co-founded Mortgage Solutions, a full service mortgage lender and has recently developed valuable consumer direct loss mitigation platforms instrumental in saving homes and rehabilitating consumers, including Debt Relief IQ, a consumer friendly debt relief portal that guides consumers to debt settlement resolution utilizing proprietary technology. He is currently the Founder/CEO of Red Rock Servicing, a national asset management servicer that deploys a proprietary ‘single system of record' technology to manage distressed mortgage assets. For more information: www.debtreliefIQ.com

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