Bull Bear Report Nov 18 2009

Hiring Surge: Banks Enlist Thousands to Fight Foreclosure

By kyle stock

It sounds like 2004 all over again: Thousands of new hires at lenders are pushing lower mortgage rates and lenient payment terms on borrowers.

This time around, things are different. Spurred by federal incentives, lending institutions are cramming offices with mortgage officers in efforts to avoid a rash of long and costly foreclosures that could weigh down their balance sheets for years.

Four of the most aggressive renegotiators -- Bank of America, Citigroup, JPMorgan Chase and Wells Fargo -- have collectively hired almost 17,000 people this year to work out new mortgage terms that keep payments coming in and people in their homes.

JPMorgan, for instance, has grown its mortgage "loss mitigation" division by 63% since the start of the year.

"It's just a huge job in front of us," JPMorgan spokesman Thomas Kelly said. "We've hired folks, we've transferred folks and everyone is working overtime. All hands on deck is really the right analogy."

Wells Fargo, which services one in six U.S. mortgages, has almost doubled its foreclosure-prevention staff this year with 6,850 new workers.

"We're using every method at our disposal to find people," said Wells Fargo spokeswoman Teri Schrettenbrunner.

Citi has also boosted its loss mitigation staff this year by about 54%, adding 1,400 new positions. In Arizona, a ground-zero for subprime disaster, Citi opened a new service center staffed by 800 mortgage negotiators.

The hiring has been costly, but the alternative -- a tidal wave of fresh foreclosures and the subsequent hunt for new buyers in a lean market -- is likely more expensive. Given the number of delinquent mortgages, some of these banks would become large real estate concerns if they did not adjust loan agreements en masse.

According to a Treasury Department report issued last week, roughly 650,000 homeowners, or one in five eligible mortgage-holders, have begun trial modifications under a new federal program that offers small incentives to all parties involved: the homeowner, the mortgage servicer and the mortgage owner.

Solving Mortgage Problems -- One at a Time
Tia Pleiman, a 42-year-old teacher in Salida, Colo., said she is nearing a modification deal on her $1,857-a-month mortgage. When she closed on the building in January 2008, the private pre-school she was running was providing her with a $75,000 a year income. But within five months, almost three-quarters of her students left and she started missing payments on her duplex, half of which housed her business.

Pleiman closed the pre-school in August, moved in with her brother, rented out the building and started calling about a modification.

"When I first got in trouble last year, I literally had people screaming at me," Pleiman said. "Now, they are so nice. Something clearly has changed."

After 10 minutes on the phone, Freddie Mac, which owns Pleiman's mortgage, said that it would try to structure a deal to halve her monthly payments, according to Pleiman.

It's a Dirty Job, But Someone's Gotta Do It
The job of a mortgage officer, however, is not sexy. There are no multi-million dollar deals or rainmaking trades -- just lots and lots of phone calls. Most of these workers make between $30,000 and $60,000 a year plus bonuses and spend their days talking to delinquent or financially strapped mortgage borrowers.

They present a number of options, including deferred principal, lower interest rates and extended maturity, with the intent to lower the monthly payment to roughly one-third of monthly household income.

Often the modifiers have to follow up with borrowers for months to finalize the new terms. At Chase, for example, only about a quarter of delinquent mortgage-holders have filed the proper paperwork to formalize the revised payment structure.

"It's a down-in-the-weeds sort of business," said Robert Wagner, who has placed a number of high-level "workout people" as a senior partner at Korn/Ferry, a Los Angeles-based search firm. "It's complicated, it's rigorous and it's not very efficient."

Most of the new hires have experience in the mortgage business, either as originators, underwriters or investors. Many played an integral part in creating the real estate bubble and the ensuing credit crisis. Now they're cleaning up the mess they helped make.

"There is, I guess, some poetic justice there," Wagner said. "They may be the best equipped people to do this type of business now."

A dozen former executives from Countrywide (now Bank of America Home Loans), one of the most active and pilloried subprime lenders, started a company in 2008 to buy distressed mortgages at a discount from big lenders looking to clean up their balance sheets. Private National Mortgage Acceptance Co. LLC, dubbed PennyMac, the venture holds $2 billion in mortgages, roughly 8,000 loans. Its 120-person staff, including about a dozen Countrywide alums, work the phones to help homeowners lower their monthly payments. PennyMac spokeswoman Aratha Johnson declined to comment on the company's ties to Countrywide.

PennyMac customer retention associate Nate Cadena used to sell loans for AmeriCash Mortgage Bankers. He said that his job is not all that different today: He gets on the phone with someone and tries to figure out how much he or she can afford to pay every month.

Cadena, 32, acknowledges that he used to earn a "very lucrative" pay, but when the economy tanked he was forced to take a job as a door-to-door salesman, an experience that readjusted his goals and perspective.

"It used to be that I wanted to make as much money as I could, now it's about a career path and stability," Cadena said. "And most importantly, I get to help people as well."

Not all of the new hires have been in the mortgage trenches. Some of the most effective negotiators offer a less tangible commodity: people skills. One of Chase's best loan modifiers is a former police officer from Jacksonville, Fla. "She's terrific on the phone with customers, because she knows how to calm people down," Kelly said. Almost all of the lenders doing extensive hiring have training programs for prospects coming from other lines of work.

More Hiring on the Horizon
Although a number of lenders declined to give details on future hiring plans, JPMorgan and Wells Fargo are still shopping for more mortgage negotiators.

"I don't think that it will continue at this pace, but our headcount is not going to go down in this area for some time," Kelly said. "We know that there's still a lot of people to work with."

PennyMac boasts to investors that it can hire 200 loan modifiers in 60 days, should it find a pile of attractive and cheap home mortgages.

Meanwhile, Tia Pleiman in Colorado is teaching high school, finishing up her income paperwork and waiting for a modification deal to come through.

"When I talked to Freddie Mac, I was actually flabbergasted," Pleiman said. "I can't believe they're going to do it this simply."

Write to Kyle Stock here.

More From Stock:

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-- Beyond and Back: Finance Emerges From Crisis Damaged But Unchanged

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