Loss Mitigation

The Federal Trade Commission has proposed a new rule that would prohibit third parties, including loan modification specialists and loss mitigation attorneys, from collecting payment for foreclosure prevention services until after they obtain a documented offer from a lender or servicer for a modification or other form of mortgage relief.

As foreclosures continue to plague the nation, many at-risk homeowners are seeking help through home preservation events sponsored by the HOPE NOW alliance, the Obama administration's Making Home Affordable Program, and NeighborWorks America.

Although government-approved programs and bailouts are in place for many sectors of the battered economy, the resources and solutions for property owners and investors in the heavily-distressed commercial real estate market are lacking. Help is available to commercial property owners, but it is not widely known about. As a result, commercial properties continue to face foreclosure, and commercial real estate is expected to remain a drag on the U.S. economy through 2010 and beyond.

A key Treasury official is publicly speaking out against new rules that would require lenders to retain some of the risk on mortgages and other assets sold to investors. At the American Securitization Forum's annual convention this week, Comptroller of the Currency John Dugan urged policymakers to focus reform efforts on improving loan underwriting standards, rather than risk retention proposals that could hamper an already-tenuous securities industry and further diminish credit availability.

Lenders Asset Management Corporation (LAMCO), a nationwide REO management company, said Thursday that it has enhanced its disaster recovery plan, which details LAMCO's procedures for responding to emergency situations, such as natural disasters or accidents, that could potentially threaten service level agreements.

Problems in the commercial real estate sector have put Congress on the offensive. House members are particularly concerned with guidance issued be federal banking regulators, advising lenders to extend or restructure loans backed by income-producing or development properties. Lawmakers say there are indications these loans are not being serviced properly, and evidence that regulators themselves are triggering defaults by encouraging lenders to write down the value of performing loans when payments are current.

The Corvus Group, a Washington, D.C.-area firm with nearly $10 billion of real estate assets under management from failed banks, has formed a Troubled Asset Advisory Group (Corvus TAAG). The group, based in Chicago, says it provides specialized staffing and advisory services to companies involved with troubled and distressed commercial real estate and homebuilder/residential development debt.

In an effort to bring Web-based tools to homeowners in need of foreclosure prevention assistance, Columbia, Maryland-based IndiSoft and Financial Literacy Solutions (FLS), headquartered in Coral Springs, Florida, have entered into a strategic partnership.

The Federal Housing Finance Agency (FHFA) recently released its monthly Foreclosure Prevention Report, which summarizes loss mitigation activity for Fannie Mae and Freddie Mac. Under the administration's Home Affordable Modification Program (HAMP), the GSEs have initiated 43,000 permanent modifications and 442,500 active trials. FHFA also reported that in 2009, the two companies refinanced more than 4 million loans for struggling homeowners.

Defaults on home loans held by Fannie Mae and Freddie Mac continue to climb, but the two aren't taking the losses lying down. The GSEs' forced banks to buy back $7 billion in soured loans during the first nine months of 2009, and it's the largest lenders that are taking the biggest hit. A growing number of community banks, on the other hand, are seeing interest from discerning buyers for assets already identified as ""bad loans,"" and they're shrinking their nonperforming portfolios by as much as 80 percent with one sale.