Subprime Woes Change Face of Collections

Losses in the subprime mortgage market will mean more collections activities for mortgage servicing firms, Cheryl Lang, president, of Houston, Tex.-based Integrated Mortgage Solutions, tells insideARM.com. Since 2000, mortgage service firm IMS has handled over 38,000 properties and $100 million in claims and repairs, says Lang, offering lenders "doorknock" inspections, occupant verification, loss mitigation, and skip tracing.

Lang says that subprime mortgage losses could bring more business for one-person collection offices and generate jobs for former mortgage lenders and brokers that may have recently been laid off. “More brokers and loan officers who are now out of a job will probably get into the collection business,” Lang noted.

Lang expects collectors to be most aggressive for second and third mortgages, which continued to be popular with consumers as equity in their homes rose as the Federal Reserve kept interest rates low. Even when the Fed started raising rates, equity continued to increase until the recent downturn.

One third of all homes have these loans (or lines) with an average debt of $30,000, Lang adds. “If you can collect half of that, it’s not that bad.”

The rise in business comes as the cost of collecting debt has gotten more expensive, says Lang. That has led some lenders to look for low-cost collectors, often opting for a firm with nothing more than a phone, a computer and some questionable tactics that give mortgage servicers and legitimate agencies a bad name.

“The FTC gets complaints all the time about how debt collection is being handled, that could lead to a push for tighter laws on how collections can be handled,” Lang said. In her view, collections should be seen as a financial counseling opportunity to help borrowers keep their homes from foreclosure and to ensure the lender isn’t stuck with managing foreclosures.