DS News

68 success and foreclosure prevention cannot be synonymous would be inaccurate. Private investors who work with special servicers on their portfolio are able to offer broader options for borrowers than, say, a nonprofit operating with limited capital and capacity. e goal of an investor is simple—maximize the return on their investment. One could argue that with such a clear goal in mind, there is little room to be distracted by political or regional factors that can, at times, slow progress. At Selene Finance, we service many pools that were previously deemed too challenging by other servicers. Despite its best efforts, the previous servicer had been unable to find a solution that would keep a borrower in their home or let them responsibly leave the home, if that's their choice. ese loans require a different level of servicing that can best be provided by a special servicer with expertise in distressed loans. We are consistently working through scenarios where the agency's loss mitigation waterfall has been exhausted and foreclosure appears to be the only option. For example, Selene was working on a loan that was part of HUD's Distressed Asset Stabilization Program (DASP) portfolio transfer from a private investor. e borrower's home had a value that was well below what they owed, and, due to a string of unfortunate incidents, they had filed for bankruptcy. Previous servicers, bound by the HUD waterfall, had told them they couldn't get a modification based on their income. However, once Selene received the loan, we were able to work with the private investor to restructure the loan and configure a modification that dropped their monthly payment by more than $800. rough creative strategies, we waived late fees and deferred past due, escrow, advances, and even UPB. If the borrower continues to keep their loan current, without any late payments over the first 12 months, 1/3 of their deferred balance will be waived by the investor. Even further, if they keep the loan current for 24 months, another third will be waived. And this will continue, so the borrower could end up with a zero deferred balance and an LTV that is more in line with their property value. Now we have a happy borrower in their home and a happy investor receiving regular payments. OFFERING OPTIONS e flexibility provided to special servicers by a private investor is the key differentiator in these scenarios. Purchasing the pool at a discount allows for special se rvicers to offer a different set of options that can better suit the borrower, while still meeting the financial goals of the investor. Contrary to criticism, private investors don't push borrowers to a fast foreclosure. In fact, most of the private investors we work with have a cash flow strategy, as opposed to a liquidation strategy. A cash flow strategy can include, for example, modifications and repayment plans. As a result, we're able to get creative in our outreach strategy. We can send unique mailers and letters in colored envelopes or even small tokens to get in front of borrowers who are otherwise exhausted from the process. We've found that taking a different approach can build trust and participation from even the most disengaged borrower. Many of these tactics would be prohibitively expensive for loans in pools owned by agencies, or even smaller nonprofits and investors. So dividing the pools into groupings that best target different purchasers ultimately benefits the borrowers and their community, since they are sold to the right investor—one who is armed with a specific set of unique tools to move them forward. At Selene, we're proud of the work we do to find sustainable solutions that best suit the borrower and the investor. Since January 2015, 50 percent of the actions we've taken have been workouts—a notable result for pools of loans that were otherwise considered exhausted. Workouts include a variety of results such as modifications, short sales, deed-in-lieu, and reinstatements. We also see only a 17.2 percent modification redefault rate after 12 months. is illustrates our ability to find the right alternative solution that works long-term for a borrower who's facing a unique set of challenges. PLAYING AN IMPORTANT ROLE I can understand the concern of the critics who believe private investors are looking for a quick profit. However, I feel strongly that concern is misguided—and not only in my role as the CEO of a special servicer who admittedly gets much of our volume from these agency trades. I believe that private investors play an important role in finding sustainable solutions for borrowers and stabilizing neighborhoods facing blight and distress. But as with anything, balance is important. rough a cooperative partnership with each of the participants—agencies, investors, servicers, local organizations, and nonprofits—I believe we'll continue to see positive results. Despite different goals, each of the groups involved in these sales play an important role. Maintaining homeownership and stable neighborhoods and providing borrowers with sustainable options are central to the balance of our industry overall, and we can all help it continue to succeed. IN IT FOR THE LONG HAUL As the new administration takes office, change is inevitable. For now, however, it appears these sales will continue despite the critics. e variety of purchasers remains important, as we've seen varying outcomes from different pools. It's clear that the agencies cannot continue to hold these loans, and special servicers are uniquely positioned—with the support of their investors—to move the loans to the next stage, whether that is through a modification or a responsible exit. For those of us who have been in the industry for a while, we've seen lots of change. Critics can become supporters and advocates can become detractors. For now, it's important to keep clear goals in mind: Support the borrower and the neighborhood and improve the liquidity of the owner's assets. I think these are goals we can all support, and I look forward to continuing to make a positive impact on our industry. The flexibility provided to special servicers by a private investor is the key differentiator in these scenarios. Purchasing the pool at a discount allows for special servicers to offer a different set of options that can better suit the borrower, while still meeting the financial goals of the investor.

• Cover