Tool gives distressed-asset managers insight into borrower behavior, risk
If no mod can be done, can the client go through a short sale? If so, what would be the value of that short sale? Finally, if you take the homeowner through the foreclosure process, what will be the expected outcome?
Although WillCap was launched two years ago, it's taken a while to be picked up by the large banks, for a couple of reasons: long sales cycles and the banks' need to internally test the model.
"Our model that predicts loans will go 90 days or more past due significantly outperforms the current at-risk models at the money-center banks," Bradley said.
Fate and fortune predictably have changed the program.
"The nice thing about what's happening now and the reason why WillCap has gotten considerably more traction over the past quarter is because mandated programs are winding down," Bradley said.
Going forward, major loan servicers will have more discretion as to how mortgages are treated.
"Even though banks knew what they were doing, may not have been optimal -- the banks had to do it because it was mandated," Bradley said.
Which leads to an interesting point, Bradley said. "We are talking to hedge funds and people involved in buying and selling whole loan portfolios because to the extent the financially regulated institutions are following disposition strategies that were suboptimal but couldn't do anything about it.
"Another entity not nearly so regulated could buy those distressed assets from the banks at below what the assets might be worth. That creates an arbitrage opportunity for the acquirer."
To my way of thinking, this could be a useful tool for the mortgage industry. Someone comes in and wants a $400,000 loan to buy a single-family residence in Boulder, Colo. The bank runs WillCap and sees that if the loan is made there is a distinct possibility it will go 90 days delinquent at some point in the future. The bank doesn't make the loan.
"WillCap could be used for new mortgages," Bradley said. "That's just not our current focus, which is helping people manage distressed assets either in their portfolio or buying and selling distressed-asset portfolios."
Well, OK. But I did have a good idea.
Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis," is now available for sale on Amazon.com.
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