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Ocwen First to Begin Federal Loan Mods

""Ocwen Financial Corporation"":http://www.ocwen.com, a subprime mortgage servicer headquartered in West Palm Beach, Florida, announced on Monday that it is the first servicer in the country to begin executing loan modifications under the Treasury Department's new ""Home Affordable Modification"":http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf program.
This federal mortgage relief initiative, aimed directly at the foreclosure epidemic that is holding the nation's housing markets under water, is expected to help three to four million distressed homeowners keep their homes by retooling their loans and reducing their monthly mortgage payments.
Even though the contracts for lenders and servicers to participate in the federal loan mod program have not yet been provided, the Treasury Department asked those servicers ready to adopt the program to do so given the extent of the foreclosure crisis and its detrimental effects on local housing markets. Ocwen says it was able to very quickly adapt its existing modification initiatives to comply with the government's Making Home Affordable program, largely because the company's home retention staff utilizes an automated, scalable loan servicing platform.
Ocwen Chairman William C. Erbey said the company was ""proud to be able to aggressively implement the president's plan,"" adding that Ocwen fully supports the program and is committed to helping make it a success.
In a letter to President Obama, Erbey wrote, ""On behalf of Ocwen Financial Corporation, I applaud you, Secretaries Geithner and Donovan and your economic team on the adoption of... a sweeping loan modification program to assist homeowners with unaffordable mortgages and prevent avoidable foreclosures. We share your view that loan modifications are the key for a lasting solution to the daunting foreclosure crisis -- a crisis that lies at the very heart of our nation's economic problems and threatens millions of families with the loss of their American dream -- their home. We fully support your new plan and will work hard to help make it a success.""
According to Ronald M. Faris, Ocwen's president, the company's modification processes required very little tweaking to comply with federal guidelines. Faris also noted that since the outset of the mortgage crisis, Ocwen has increased its default servicing staff by more than 65 percent, further enabling its vigorous launch of the government program.
The administration's ""Home Affordable Modification"":http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf program covers mortgages that are in default, or in imminent default, within the Federal Housing Finance Agency (FHFA) conforming limit of $729,750 on owner-occupied homes. Participating servicers must reduce monthly payments on those loans to no more than 31 percent of the homeowner's monthly gross income, so long as the modified loan provides more cash flow to the loan owner than what would be realized in a foreclosure.
The reduced payments are to be achieved through interest rate reductions, extended amortization terms, and/or principal forbearance or forgiveness. Servicers will receive an up-front incentive fee of $1,000 for every modification under the program, plus a $1,000 success fee for each year the modified loan stays current, for up to three years. Borrowers receive a government subsidized principal reduction of $1,000 per year for staying current on the loan, for up to five years.
According to Erbey, the program guidelines are very similar to the customized modification approach already in place at Ocwen. At a congressional hearing in February, Erbey touted this type of workout model as a win/win/win solution for all involved: the homeowner keeps their home, the loan investor avoids a substantial loss, and the loan servicer retains the loan in its servicing portfolio, he explained.
Erbey points to an industry study by Credit Suisse that says, ""Ocwen's loan modification program generates the highest cash flows by any servicer on 90-plus days delinquent loans -- an amount that is twice the industry average."" In addition, Ocwen says its customized loan mods have a re-default rate of 24 percent after six months, compared to an industry average of 41 percent.
Since the inception of the housing crisis, Ocwen has saved over 90,000 homes from foreclosure.
Over the past 10 years, Ocwen has invested more than $100 million in designing and refining its default servicing systems. The company's technology uses artificial intelligence, rules-based systems, scripting engines, and net present value cash flow algorithms to enable its staff to apply common elements quickly across large volumes of delinquencies and modifications, while still allowing for an analytic approach to individual loans.
Ocwen has also established a psychology department, staffed with academics, to help the company's loan analytics experts integrate behavioral sciences into decisioning models. Erbey explained that the goal of this new component is to remove variability from key processes and make interactions with distressed customers more effective.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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