Foreclosure is Far From the Only Option

Implications: This Standard & Poor's report, released March 14, 2007 provides both crucial information and comfort to investors in subprime mbs or subprime mortgage originators. 

In light of the recent media blitz about increased defaults in subprime mortgages, S&P contacted each major Servicer and "Special Servicer"  to gauge their preparedness for the deluge of defaults subprime mortgages are expected to experience.

A cogent summary, it provides an introduction and succinct explanation of loss mitigation, how it is implemented by the Servicer/Special Servicer and gives one an idea of how a few of the largest players plan to approach this anticipated problem. 

It is no surprise that Foreclosure is not at the top of any of the servicers' plans.  In addition to defining "Loss Mitigation," the report describes the economic and operational aspects of the various alternatives to foreclosures.

Analysis:

The market, or at least those new to the market, has been crying out for such an article.  Despite all the media attention aimed at what has come to be know as "the subprime crisis" , I Have yet to come across one article, besides this S&P report, which states that there are alternatives to foreclosures. 

This article  not only explains loss mitigation, but also provides the reader with specifics on how the major players intend to cope with subprime mortgages.  Surprisingly,  throwing poor families that have been tricked into subprime mortgages out on the street isn't in any of the servicers' strategies.  One would never guess from what we're reading in the newspapers! 

One other note -S&P does not completely explain their servicer rating/review process, however, they do emphasize how crucial the Servicer's operational processes are.  Financial Strength is considered if there is a sudden change in a company's capital and the change is drastic enough to cause the servicing management and staff to begin resigning.