Bankruptcy

Do Mortgage Servicers Even Understand Their Own Business?

By Adam Levitin

The House Financial Services Committee's Subcommittee on Housing and Community Opportunity had a hearing today on foreclosures, modifications, and servicing.  There was a deja vu aspect to the hearing.  Congress has been holding this same type of hearing for 4 years now, and nothing seems to change.  The servicers all say that they promise to make improvements, but that they can't help everyone and nothing really changes.  

There was one particularly enlightening moment from the hearing, however.  Rep. Brad Miller (D-NC) asked a panel with some 5 servicing executives on it why it makes sense for a servicer to be affiliated with either a loan originator, a loan securitizer, or a trustee.   He might have been speaking Klingon to these executives.  They stared blankly at him like he was asking them something that was far beyond their comprehension.  None of them had a real answer for him,.

This wasn't a case of the servicers not wanting to speak an uncomfortable truth.  There are perfectly legitimate reasons to bundle origination and servicing, for example--servicing is countercylical to origination (this is hardly news; banks' 10-Ks state as much).  Instead, this was a case of silence from ignorance.     

I was rather stunned to realize that a bunch of senior servicing executives clearly had no understanding of their own industry and that they had probably never given it any thought.  Maybe I'm just too used to navel-gazing academics, but if top servicing executives don't understand basic things about their own industry, why are we listening to them about anything?  

(Miller's question is just at the end of the second panel, at around 1:15 pm, which should be 3:15 or so into the total hearing.)  

Full post as published by Credit Slips on November 19, 2010 (boomark / email).