Orange County Register

(Update: Correction on an EMC response. Revised answer says no loan modification limit — clarification from company.)
It can be confusing for homeowners when their lender sells their loan and they’re not sure where to send next month’s check.

But imagine someone who just lost a job or is facing a big jump in payments because the low “teaser” rate is about to end. Can such a borrower get needed help from a loan servicer that doesn’t own the mortgage?

I quizzed two industry heavy weights on the issue: Bob Caruso (top photo), a senior vice president and national servicing executive with Bank of America, and John Vella, head of EMC Mortgage, a unit of Bear Stearns.

I’ve melded the two interviews together and here’s what they had to say:
Q. Could you start by outlining your loan servicing business?

Caruso: “For first mortgages we service just under $400 billion of mortgages. Some owned by the bank; most owned by Fannie Mae, Freddie Mac and others. We originate all those loans though the bank. We retain servicing. We may sell assets. The customer remains with the bank. We also have about $100 billion of home equity.” He added that Bank of America services 2.5 million first mortgages and about 2 million home equity loans or lines of credit. And he said the bank has about 3,000 servicing employees.

Vella: “We are responsible for 500,000 loans, and when you add up all principal balances, the total is about $80 billion. We have approximately 1,500 people, and of those, 200 are in Irvine and that office is growing. We just started the Irvine operation about 120 days ago. We have been able to attract some good talent there.”

“To summarize servicing, you manage pretty much all of the accounting, investor reporting, customer service, delinquent loan management, and real estate owned. The investor reporting is because you have investors who buy these loans that we service.”

“You have a master servicing operation, and then you have normal support groups, such as legal, human resources, technology, finance and marketing.”

He said the company also services all loans made by Bear Stearns. Most loans were sold to investors, he said.

Q. Have you ramped up servicing staff recently or do you plan to increase it soon with loan delinquencies rising in the U.S.?

Caruso: “We are managing as needed, as we see delinquencies, defaults increase. We don’t have any big plans to increase staffing. We have been very fortunate compared to the competition. We have not seen a substantial increase in foreclosures.”

“We definitely have avoided risks others have taken. We don’t do any subprime loans. We try to help the customer find the right product. We have always underwritten loans to make sure the customer can afford the payments.”

“We are not in it like a mortgage broker, to make a loan and then sell it. We want to own that customer. We want to help them not only get a home, but also home equity loans, and auto loans. We want to have all their savings and investments. We work incredibly hard to help them keep their home.”

Vella: “Over the last year and a half there has been a surge in loan production, up until about six months ago. That has increased our servicing book.”

“Bear Stearns has loan origination through Bear Stearns Residential Mortgage Corporation and Encore Credit and we also buy loans in bulk and flow through our conduit origination business, where we buy closed-end loans. We also buy what we call scratch-and-dent loans. We put those on our platform as well. Those are all the channels of how we get servicing business in the door.”

“Over the last few months I think the whole industry has seen a rise in delinquencies and loans in foreclosure, and that’s where our staffing growth has occurred. We are being very proactive in hiring staff to work with our customers who are having difficulty. For instance, in California, because we have the space with our sister company Encore Credit, we decided six months ago to begin setting up operations in Irvine for our servicing to get experienced customer-service-collections and loss-mitigation staff to stay ahead of the curve in dealing with customers who are having financial difficulty”

He said the company has 200 workers in Irvine and is hiring 100 more. He said more than 225 people attended a job fair for EMC on Wednesday, Aug. 22.

“These were outstanding candidates with a lot of experience. We’ll be sifting through resumes and test scores to get some offers out to people. Once that group settles, we will determine if we should go through another round.”

Q. How does your ability to work with a financially troubled borrower vary if your company holds the loan vs. servicing it on behalf of investors?

Caruso: “If we both own the loan and service it, we control all the rules.”

He also said on loans Bank of America services for others, it generally negotiates the ability to work with customers to keep them current on their loans. That includes modifying loan terms, if necessary.

Vella: Regarding loans it services for others, he said “The majority of our agreements give us some leeway to modify loans. The majority of our securitization agreements allow us to do that. We all know that foreclosure does not benefit the investor, nor does it benefit the borrower, the servicer nor our communities.”

(Editor’s note: The next two questions I asked only of Vella, for no other reason then they flowed naturally during our exchange.)
Q. What are the specific rules you have to follow if the loan has been sold?

Vella: “We do have parameters. The borrower needs to be in default or in
imminent danger of default.”

Q. What’s the limit for loans you can modify in any given pool?

Vella: “There is no limit.”

Q. Could you give some examples of how you work with borrowers in a financial jam?

Caruso says the bank determines if the financial problem is a short-term one, such as a job loss when the borrower has a likelihood of getting a new job, or a long-term one, such as borrower getting a new job with a pay cut.

He said Bank of America can extend the terms of the loan and lower the interest rate if the problem is long term.

“There may be some rules or requirements for us to do certain things, like notify and get approval from investors, and we can do that.”

Vella: “We work with the borrower to look at their overall situation. We look at income and expenses. We review their employment status. We look at their payment history with us. Then we determine: does the borrower qualify for a rate reduction? Normally, a modification would include a rate reduction.”

He also said the company could take any missed payments and spread them out, adding them to future loan payments

“There are several questions to ask: Is the borrower willing to stay in house? What’s the term of the hardship, long-term or short term? And what’s their financial capacity? What’s their employment status?”

He said after all the questions are answered, EMC will work with the borrower on a solution. Options include a repayment plan for missed payments, modifying the terms of the loans, or a short sale. A short sale is when the homeowner sells the property for less than debt owed to the lender.

(Editor’s Note: Short sales are becoming more common. But they have tax implications. The amount of debt ‘forgiven’ by a lender may be treated as taxable income by the government. So a short seller will likely get a tax bill from Uncle Sam.)

Q. How many consumer calls are you getting or making each week? How has that changed over the past six months?

Caruso: “We make more phone calls out than customers call us.”

He added that employees have incentives to work with consumers.

“Here’s how it kind of works. If the employee identifies a customer, they pass it to the loss mitigation area. Loss mitigation has an incentive to find the right solution. They have a goal, a number of customers to work out. We track performance.”

Vella said EMC employees make about 4 million calls a month, up from 1.7 million six months ago. Vella said they receive about 150,000 calls a month, up from 125,000 six months ago

(Editor’s note: Some fun math….If the company employs about 1,500 workers, and there’s on average 22 working days a month, that would mean each employee makes 121 calls a day, or 15 calls an hour during an eight-hour work day.)

“You have to understand that you have to make multiple phone calls to reach someone. One of the most difficult things in this industry is to contact the borrower. If we never talk to the customer, we cannot work with them on trying to save their home.”

“We have done things like the EMC Mod Squad and road shows where we go face-to-face with borrowers.”

He said the Mod Squad focuses on borrowers facing the end of low introductory rates on mortgages. Such borrowers, especially subprime, could get hit with much higher monthly payments.

“(The Mod Squad) also has its own subset that goes out once a month to locations to meet with borrowers face-to-face where we have high concentrations of borrowers who are in foreclosure or having financial problems. Their goal is to determine whether we can assist these customers with a way to stay in their homes.”

Q. What’s your advice to consumers who are worried they won’t be able to afford their mortgage in the near future?

Caruso: “Great question. What we always ask customers is to get a little information together. They need an understanding of their own situation. It’s like when you apply for a loan, the preparation work, understanding expenses and income etc. Then make a phone call to the institution servicing the loan. Be patient. They are going to ask a lot of questions to get a proper analysis of your situation.”

“If you are not getting through to someone, or someone is not being reasonable, ask to speak with a supervisor or manager. The employee may not understand, but the institution does not want your home.”

Vella: “They need to contact their lender and have all their financial information available.”

Both Vella and Caruso said it’s never too late to call the servicer, right up until the moment of a foreclosure sale.

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