Ocwen Reports Loan Modification Numbers
Shortly after the OCC announced dismal results on loan modifications, Ocwen released its own results, claiming that only 24.6 of the homeowners who were granted a loan modification were 60 days late within 6 months.
So, this is what we’re calling success? 1 out of 4 homeowners who gets a loan modification misses TWO of the first six payments afterwards, and they’re patting themselves on the back?
I’ve written a number of times on why lenders don’t want to modify your mortgage. Meanwhile, Ocwen has been touting its loan modification efforts for quite some time. Robert Dubitsky, a Credit Suisse analyst, has suggested that their real motivation may be self interest. They prefer to offer a loan modification, because it allows them to stop paying out advances on the delinquent loans. This preserves capital for them, along with getting files off the loss mitigation department desks.
Another reason, perhaps more important, is that there is a lot more flexibility in the portfolios that they service. A healthy chunk of Ocwen’s loans would be called “predatory” by the mainstream media, although it’s unclear if they meet the technical definition of the term. When you have a borrower paying credit card-like interest rates, well into the double digits, it doesn’t take a genius to figure out that lowering the interest rate will make a difference.
Also, in a lot of cases, the underlying property was over-appraised, so reducing principal makes sense as well, because the fact is, the debt is worth much less than face value. Even a conventional sale at full market value is not going to net enough to pay off the debt, so we may as well get real and write these down.
It’s pretty easy to look like a hero when you’ve modified a loan for a borrower who was probably getting screwed from day one. So while it is laudable that Ocwen is aggressively offering loan modifications to homeowners, I don’t think they should be nominated for the Nobel Peace Prize. They’re not any more socially conscious than other loan servicers, or “better” at loss mitigation. The only reason they’re having any loan modification “success” is because the skanky, toxic loans that they service are still profitable (for the senior bondholders, at least) after a significant haircut (for the junior bondholders). This is not so much a “win-win” solution so much as a “win-win-lose.”
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