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There was an interesting story recently over at HousingWire reporting that two lenders — GMAC and Ocwen — have ramped up the number of principal write downs in this months. Here is a bit from that article:

Mortgage servicers began aggressively writing down the principal on delinquent nonagency mortgages and even second liens in January, analysts at JPMorgan Chase said in a report Wednesday, yet the amount of foreclosed properties continues to rise.

GMAC, the servicing arm of Ally Financial, stood out to analysts, who surveyed 433 deals in the nonagency space. In one security, GMAC liquidated 45 mortgages for a $3.2 million loss. At the same time, however, it modified nearly 1,200 of the loans that included $5.5 million in principal forgiveness.

“This is the first time we have seen large-scale principal forgiveness from GMAC,” JPMorgan analysts said. Outside of GMAC, however, principal forgiveness has been contained only in the subprime sector, but even those have occurred on a smaller scale to GMAC’s January numbers.

Ocwen Financial Corp. showed a push to charge-off second liens and low-balance first liens when it took over servicing for HomEq and Saxon Mortgage Services.

“I haven’t seen the report so I cannot comment specifically on it, but I can say that whenever we charge off second liens, it’s in accordance the governing PSAs (pooling and servicing agreements) and consistent with accepted industry practice,” Ocwen Executive Vice President Paul Koches told HousingWire.

While GMAC and Ocwen have shown that they’re ramping up writedown efforts, JPMorgan analysts said the effort is not seen industry wide.

“Bank servicers have not yet shown strong evidence of forgiveness,” analysts said.

Most lenders are loath to forgive principal for struggling homeowners. Lenders prefer to lower interest rates if they must do anything at all. That way the bank at least still has the right to collect the full amount lent. However, foreclosing on a property costs lenders more money than principal write-downs cost so in some cases the lenders go for that option. It is still rare but it appears it is becoming slightly less rare as of late.

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Comments (2) Posted by G.R.A. Admin on Wednesday, January 26th, 2011


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