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FHA Loans Could Lead to Portfolio Growth for Servicers

Default Notice BHAltisource [1] recently released its inaugural Default Servicing Survey, which pooled over 200 servicing professionals from June 22 to June 29 in order to gather its data. According to the results, 71 percent of servicers believed that FHA and VA loans would increase in the next 12 to 24 months, which according to Min Alexander, SVP, Real Estate Services at Altisource, "is quite dramatic." Further, 41 percent thought that FHA loans would account for a majority of the additions to their portfolio.

The report notes that the U.S. Department of Housing and Urban Development’s data shows that while only 17 percent of newly originated mortgages in 2016 were through the FHA, those loans comprise 35 percent of all loans delinquent for 30-plus days.

"What we're finding is these professionals that we surveyed were all selected because they are part of the default servicing space," she said, "And for us and FHA, most of us in our industry have been predicting this after the 2008 crisis, our foreclosure rates are now back to pre-crisis levels. That being said, because real estate is so cyclical, everyone has been waiting. And because the industry is changing, are we to expect a downturn in the next five years? When would something like that come about?"

Costs from FHA conveyance fees are a concern for servicers, so much so that 29 percent of the survey pool said the greatest challenge in dealing with Claims Without Conveyance of Title. In response, servicers are evaluating their third-party vendors to make sure that they possess the proper knowledge to comply with the program—97 percent of servicers that participated in the survey said they are considering a single-vendor approach to streamline the increasingly complicated process.

“As the housing market continues its recovery and demand continues to outstrip supply, vendors’ CWCOT programs have a key role to play in helping servicers move housing inventory quickly back to the market,” said Alexander. “However, distressed properties require servicers to effectively manage multiple processes, with CWCOT as one part of a multilayered disposition strategy. Managing various third-party vendors only adds to the complexity and information asymmetry through the property lifecycle. It comes as little surprise that servicers are often choosing a single-vendor approach for comprehensive solutions to streamline their processes for higher quality and consistency of outcomes.”

Altisource’s full report can be found here. [2]