This piece originally appeared in the February 2023 edition of DS News magazine, online now.
Stephen M. Hladik (Partner, Hladik, Onorato & Federman, LLP; Chair, Legal League 100) and Kent McPhail (Managing Partner, McPhail Sanchez, LLC) are both default servicing attorneys, each with more than 30 years of experience in the industry. They recently spoke with DS News to discuss their insights into the housing market, which they also cover on their podcast, What the M. Hladik and McPhail’s show is emerging as one of the best ways for those in the default industry to learn more about, and navigate, the market.
Hladik and McPhail launched the bi-weekly podcast in September 2022, with the goal of providing listeners with up-to-the-minute information on servicer and default issues, as well as discussing mortgage foreclosure rates, trends and other nationwide foreclosure statistics. What the M also takes a deep-dive into the economics impacting foreclosure regulations, explores recent industry-related court decisions, and more. On each episode, Hladik and McPhail interview a guest who has unique insight into a particular area of the mortgage industry. Past guests have included high-level executives from several of the nation’s largest mortgage loan servicers, a statistician, and the Executive Director of the VA’s Home Loan Program. The depth of each guest’s knowledge about their specific area of the industry enables Hladik and McPhail to provide their audience with a deep dive into that area—all of which coalesce, for consistent listeners, into a complete picture of where the industry currently stands.
What was the motivation behind launching What the M?
Hladik: I am a podcast listener, enjoying a wide variety of shows. One of the real reasons behind why the What the M podcast started was when I spent hours searching for any kind of podcast out there that talked specifically about the mortgage default servicing industry. There are many podcasts that discuss mortgage originations, real estate, and investment. But there was nothing that focused on mortgage servicing issues, default issues, mortgage foreclosure rates, economics impacting foreclosures, rules impacting foreclosures, and court cases impacting foreclosures. So I thought, well, since there is not anything like that out there, why don’t we start our own podcast? And Kent was more than willing and able, and he brought the technological know-how to help us put that idea into action.
McPhail: Steve and I were sitting at the Five Star Conference, and he started talking about wanting to do a podcast, which I thought was a great idea. From there it just kind of took off. Steve was definitely the driving force, and I was happy to be asked to be on the team. Steve is an extremely intelligent and knowledgeable individual and it is a joy to work with him on this project. With Steve being from the northeast and me being from the deep south, I believe we have a good yin and yang thing going on. It’s been going great so far. We’ve had some amazing guests with many more planned, and quite frankly, we are having a blast.
Hladik: From where we started and where we are already at, I am astounded by the number of people that listen to the podcast. I am amazed by how far the podcast reaches. A lot of that is a credit to the quality of the guests, as Kent mentioned. We have had some very high-profile, excellent people explaining different avenues of economics impacting mortgages.
What type of education and insights are you providing for your listeners?
McPhail: While we strive to make the podcast accessible to all, What the M is intended primarily to provide information, education, and insights to individuals who work in any facet of the default servicing industry. When planning an episode, we decide on a different theme or industry-related topic that we believe will provide value for our listeners. After we decide on our theme, Steve and I then reach out to industry leaders who we know will offer invaluable insight on the topic. We’ve been incredibly fortunate that so many people have been generous enough with their time to say “yes” when we ask them to appear on the podcast.
We try to dig into wide-ranging, novel topics. One episode I was eager to produce focused solely on the attorney-client relationship between law firms and mortgage servicers. I had personally never heard that relationship discussed in-depth in media before, and I definitely believe that attorneys and servicers can benefit greatly from that dialogue. Another episode focused on the incredible charitable work done by one of the nation’s largest servicers.
Of course, given the nature of our industry, several of our episodes have been very fact- and statistic-driven. But the information listeners can gain from these episodes are invaluable and, due to the personalities and character of our guests, can be quite captivating. Recently, we interviewed John Bell, Director of the loan guaranty program for the Veterans Benefits Administration. On our latest episode, we interviewed Rick Sharga, EVP of Market Intelligence for ATTOM Data Solutions. The breadth and depth of both guests’ knowledge of the current state of the industry, as well as its future, cannot be overstated. I learn so much from each guest.
Hladik: John Bell was a fantastic guest. Learning about how much he has helped grow and enhance the VA portfolio was fantastic. As Kent mentioned, just like our listeners, we are also learning on every episode. We are listening to the guests and learning from their experiences. I have always enjoyed the educational aspect of my job, whether that’s giving presentations or keeping clients informed of new issues coming down the pike. This podcast goes hand in hand with that, as we get to educate the listeners on some truly fascinating topics, while learning from the guests as well. That’s a win-win for us.
Kent and I are having a great time with the podcast, and we want to continue to grow the audience. We want to make sure that we provide guests, topics, and issues that are of interest to listeners. We invite everyone to reach out through social media or email us. Let us know things you would like to hear about. In addition to our guest interviews, we added a segment where we discuss hot legal topics within the industry-anything from a state-specific foreclosure bill that just passed in New York from a national court decision dealing with the CFPB. If it is relevant to the industry, we want our listeners to know about it. The podcast is a fantastic way to provide vital information to our listeners as quickly as possible.
McPhail: I agree with that completely, Steve. The podcast format provides such an easy and direct way to communicate information. It’s wonderful to be able to provide up-to-the-minute updates to our listeners. Steve and I can record an episode in the morning and have it up by the afternoon so that our listeners never miss an important development within the industry.
Would people outside the industry, such as potential homebuyers, find useful information in the podcast too?
Hladik: I think, particularly from the economic side, some of what we talk about is very industry-specific, which can come with a lot of industry nomenclature. However, we strive to be conscious of that and explain things as clearly as possible, using terms that are accessible to any listener. In addition to providing information that we think will benefit industry insiders, we endeavor to also give a 20,000-foot view, and be mindful of what concerns homeowners and potential homebuyers might have. I would encourage anyone to give the podcast a listen.
We’ve been fortunate enough to talk to some amazing people and I’m wowed by their level of competence and intelligence. And as for the podcast itself, I think that we’re getting exponentially better as we go.
McPhail: Again, I agree, Steve. While the podcast is directed at the default industry, individual consumers and potential homebuyers will find extensive information that could assist them with their immediate and long-term financial planning. I would again reference the episode with Rick Sharga. While we are all “reading tea leaves,” trying to figure out what happens next, Rick spoke at length about expectations for the economy as a whole and about the industry specifically. This sort of micro and macro-economic information is extremely valuable to industry professionals and non-industry consumers.
Changing topics, how is your involvement with the legal league benefiting your organizations?
Hladik: We have been a member of Legal League for a number of years now, and we’ve truly benefited from and enjoyed our membership.
For me, it’s not just the live interactions at the conferences, but again, I enjoy the educational component. The webinars we have been putting on are becoming hugely successful with both servicers and clients. Our quarterly publications, which contain all the latest information on new case law and regulations, also give firms a place where they can promote their achievements from the past year.
We get top-level speakers from within the industry and the government who provide educational benefits to servicers and clients. As a Legal League member, you also get exposure on the internet. So that’s a long answer to your short question! There are numerous benefits to membership, and we plan to continue setting the bar very high. We want to be the best trade industry organization for law firms within the default servicing industry, and what we want to do is grow and be a leader in this industry.
We want quality membership. We want everyone to be involved. We want to have as many law firms involved in participating as possible at our events. We want to be able to have the best educational opportunities for servicing clients and members. We’ve even started a certification process where employees can come in and receive education taught by members, and receive an industry certification. So, a lot is going on with the League and we intend to grow it even further.
McPhail: I think Steve hit it out of the park with that assessment. From my standpoint, it was a great opportunity to get further plugged into meeting great people within the industry. I would not know Stephen Hladik but for my involvement with Legal League, and making those professional connections is where I see the greatest value for me and my firm.
As attorneys, what major changes do you see happening within the industry, your organizations, and the economy?
Hladik: That’s a complex question. Everybody in the industry, including my law firm, is trying to predict what is going to happen in the future. With COVID, there was extensive regulatory involvement, and from that involvement we saw very positive loss mitigation programs that saved a lot of people from going into foreclosure. It was absolutely the right thing to do. The government took good, aggressive steps to keep people in their homes. But change is a constant, and rising interest rates and inflation will create wholly separate economic issues that are going to impact 2023 and beyond.
McPhail: With regard to the industry and the economy, what everyone is trying to figure out-including my firm and Steve’s firm-is what the aftermath from COVID and the current economic upheaval are going to look like. You’ve got interest rates going up, at the same time, inflation continues to climb and you’re starting to see some property values slipping in certain markets. Prior to and during COVID, home values were climbing, which provided homeowners with record amounts of equity in their homes.
These factors made loss mitigation opportunities far easier for servicers and regulators to craft, and far easier for homeowners to obtain. Now, with rates rising and values slipping, loss mitigation is becoming a much more difficult path. How do you modify a loan to assist a homeowner where the rate is a fixed 3%, but current rates are hovering around 6%? It’s just difficult to make that math work. Honestly, from my perspective,
I don’t believe there’s been a point in the history of this country where we’ve had a convergence of factors like the ones that currently face us. With regard to my firm and how we’ve faced these unprecedented factors, our goal throughout COVID, and now in the current slow market, was and remains to be a stronger firm coming out than we were going in. We implemented new technologies to improve our processes and broke down every task in every department of the firm to see where we could improve. By focusing intently on these goals, and by virtue of the fact that our firm is diversified in our creditor practice, including representation of the auto industry and a recovery department, we have not only thrived but have grown over the last three years.
Hladik: I agree with Kent that our circumstances-as an industry and a country-are unprecedented. There have been three main areas of change since COVID that I have observed, and all three are still continuing to evolve. First, there are daily regulatory changes, for example, changes related to fair debt or to credit reporting.
Those changes inevitably affect how we process cases. Second, we continually have to deal with new technological issues and challenges. Technology has changed drastically from three years ago, and with benefits also come costs. There are now an incredible amount of cybersecurity challenges and costs that law firms face. Finally, we also have to handle novel human resource issues. COVID had a lot of impact on that. Because right now, for any potential job candidate that comes in to interview, the first question they usually ask is, “Can I work remotely?”
The remote work issue is something that barely existed three years ago and now all industries are currently having to deal with it. But because we are handling highly sensitive attorney-client privileged documents, it is hard to have an entire team remote in the legal field. Law firms need people physically present within their offices to put signatures on pleadings and send mail to the courts. So that’s a challenge that all of us within the legal industry are now facing. While our firm is always interviewing, looking for top talent, we are cognizant of the fact that we have to adapt to the times, too.
Our firm has adapted. We have evolved. We worked intently on keeping our technology up-to-date. Like Kent’s firm, we focused a lot on our processes during COVID, and we continue to do so now to make our operations more efficient. We constantly evaluate our case management systems and are as technologically efficient as possible.
McPhail: The remote work issue is a huge one. If you went back three years ago and an auditor learned that 50% of your staff was remote, that would have been a very quick trip to a major audit finding. Now, post-COVID, there are many services that are almost 100% remote in terms of their employees, and remote workers are the norm. This has been a dramatic but necessary paradigm shift. Like Steve said, trying to keep up with those changes can create challenges, but at my firm we are always up for a good challenge.
What direction do you see the economy and the housing market moving in the months to come?
Hladik: You see reports in today’s news on inflation, and while the news is good, the news is not necessarily great. This means the level of price increases is not increasing as fast as it used to. Prices are still going up. With interest rates, the Fed is no doubt going to continue to take further action to raise interest rates higher. And all of that is impacting people, credit cards, car loans, and it’s certainly impacting new mortgage origination. People are going to see the ripple effects within the economy with inflation and higher interest rates.
McPhail: I absolutely agree. Steve and I have both worked extensively in the default servicing industry for several decades and have seen busts and booms. Given that the FED continues to raise rates, and are indicating they will continue to do so until inflation is curbed, I believe a recession is inevitable. Although the unemployment rate has remained steady, in order to fight rising costs, companies will have to cut overhead and, because payroll is typically a company’s largest expense, layoffs are inevitable. As these layoffs filter through the economy, they will ultimately result in increased defaults and foreclosures. That being said, I do not see foreclosures beginning to return to pre-pandemic levels until late 2023 or early 2024. If that changes, we will let you all know about it right away on What the M.
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