In the Wake of the Financial Crisis Part 1

What is now being referred to as “the financial crisis” of 2012 is over. Nearly every financial expert agrees that we are now beyond the worst of the depression, and markets are beginning to recover across the board. But, will the crisis still be impacting the way the world does business?

Mortgages - and the housing market in general - have been one of the hardest industries to be hit in recent years. Massive public outcry against the foreclosure practices of many companies have thrust mortgage servicers into the spotlight, and these companies are struggling to regain public trust. Now, thanks to regulations put forth by the Consumer Financial Protection Bureau (CFPB) may be allowing those companies to earn it back a little more quickly. CNBC has more detail on the new development.

The proposed changes by the CFPB would require servicers to consider applications for help from troubled borrowers within 30 days of receiving them. Meanwhile, servicers would not be allowed to proceed with a foreclosure until the decision on a potential modification has been made.

The new rules would apply to all mortgage servicers, not just the nation's five largest banks that earlier this year agreed to a $25 billion settlement in the wake of the "robo-signing" paperwork scandal.

The new guidelines present new challenges to mortgage servicers - especially big banks already overwhelmed with delinquent loans.

"There's a finite amount of capacity in the servicing enterprise today, and the system by design was never set up to withstand these rates of delinquency, these high rates of foreclosure for an extended and protracted period of time which is where we're at right now," said Edward Delgado, COO of Wingspan Portfolio Advisors, a Texas-based specialty servicer.

The best solution so far? Outsourcing.

…many institutions are increasingly farming out servicing, or directly selling the loans to so-called specialty servicers. These entities, which number about two dozen, often have more experience and resources to deal with troubled loans.

There is much more in this story that bears attention, and we’ll be looking at it in more detail next week, along with some insight as to how Merrill Corporation is working to better benefit your company in the wake of the financial crisis.

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