Swamped.(Portfolio)

Servicers are swimming against a torrent of incoming delinquencies. What's more--the outlook is for this deluge to continue.

While servicers are dutifully trying to adhere to a mountain of new loan-modification rules coming out of Washington, D.C., what seems to be lost on lawmakers and policymakers is that the flood of incoming problems is exponentially growing. So even if servicers wanted to--which they do--there is no way they could keep up with the massive wave of incoming defaults even if they had the most efficient workout process on the planet. Just a quick glance at some numbers will make this clear.

[ILLUSTRATION OMITTED]

According to First American CoreLogic, San Francisco, the seriously delinquent rate for all subprime loans made in 2008 averages 17.21 percent. That's for data as of March 2009. But with house prices continuing to fall, even more subprime borrowers will be pushed into default. The closer you look at these numbers, the worse things get.

For the five metropolitan statistical areas (MSAs) with the worst rates in the country of seriously delinquent subprime loans (from 2008), the rate exceeds 50 percent in all five markets. In Redding, California, for example, the seriously delinquent rate is a stunning 61.97 percent; Sarasota-Bradenton, Florida (56.03 percent); Wichita Falls, Texas (55.44 percent); Fort Myers-Cape Coral, Florida (54.85 percent); and Joplin, Missouri (50.93 percent). The 13 worst MSAs all had seriously delinquent rates on 2008 subprime loans of more than 40 percent. A loan is considered seriously delinquent if it is 90 days or more past due or in foreclosure.

There are even more head-spinning numbers, if that's not enough to paint the picture. In our Home-Price Spotlight section, we have a listing of all 50 states ranked from worst to best in terms of percentage decline in prices from each market's peak. Leading the list with a huge plunge in house prices is California. That state's home prices peaked in June 2006, and since then have dropped by 46.56 percent. The next-worst market is Nevada--where prices are down 45.66 percent since May 2006. Florida is next with prices down 41.10 percent since June 2006. These are all huge home loan markets and those kinds of price drops signal a massive wave of delinquencies, well into the future.

So no wonder servicers are drowning in defaults. It's time for a little empathy for the nation's overworked servicing staff. After all, none of them made these loans, and none of them pocketed the origination fees. Let's lighten up on these folks.

Janet Reilley Hewitt

Editor in Chief

Print Get the Mag Weekly Updates