I can see why everyone from George Goehl to John Taylor have good things to say about Ocwen. What kind of relationships do you have with the counseling agencies?
Yes, although they’ve kind of changed their focus a little bit more recently. But when we first met them, they were one of the first groups we worked with. They were an umbrella for a number of groups that were in Iowa and Cleveland and Chicago and Pittsburgh and other places. We would work with their affiliated groups to train them on what we do and we got better educated to what they did. We then showed them: here’s the information that we need and here’s who you go to if you have a customer who’s an Ocwen borrower. We set all that up so that it would be streamlined, and then we took the extra step and said, “What we want to do is tell you who our delinquent accounts are in your location, and we want you to help us track them down and work with them, and get them through the process so that we can help them.”
And we would provide some financial support to each of the individual offices, or at the [national] level and then they would disburse the money out to partly help fund their activities. I think we were one of the first ones to actually do what has evolved to what we’ll call “pay for success,” meaning for every homeowner that you work with who’s an Ocwen homeowner, we’ll pay you something on a per-homeowner basis. It allows us to know that we’re spending the dollars with the groups that are helping the most people, and it also provides them the knowledge that, if they have people who they need to help, if they’re an Ocwen customer, that they know they’re going to get maybe modest but some funding to help them continue their own activities.
And ESOP is always one of the best examples of where they just did a fantastic job of helping high volume of people. The dollars went to the groups that were helping the most people.
You made some suggestions about HAMP, and one of them was to either have a flexible front-end debt-to-income ratio (DTI) to qualify for assistance, or at least bring it down from 31 percent to 28. Do you do that?
Yes. We have always been a big supporter of HAMP, but we recommended various improvements, including more flexibility on the DTI. Look, if two people have an $80,000 income, but one person is single, the other person has three kids, a dog, and who knows what else, the single person in theory has more of it available to put towards housing, than the person with three kids and the dog. Right? There are all kinds of reasons why 31 percent isn’t the perfect solution.
But again, I don’t think HAMP is a bad program. I actually think it’s brought a lot of really great benefits.
You testified that it was a “well-designed response to the mortgage crisis.”
Yes, and it is, for all its criticism, I actually think that the industry and homeowners are much better off because of HAMP simply because it provided some standardization and clarity on what things made sense. And you could take those same principles and go beyond those if you wanted to, which we have.
When we’re evaluating somebody for HAMP, we will look at their circumstances beyond just their gross income. And for some people, a 25 DTI might be the right number. For others, we might actually think that 34 is okay. Now, if they qualify for HAMP, HAMP requires that we go down to 31, so we will go to 31, even if we think they could afford a little more, because that’s the program. But if we think they can only afford 25, then we’ll put them at 25. The benefits of HAMP that go to the investor and all that only accrue [for bringing a borrower] down to 31, but there’s nothing prohibiting a servicer from going below that. And we do do that.
Besides the flexible DTI, are there any other ways that HAMP can be improved?
I advocated that they make principal reductions more of a requirement or priority. At the time it was an option, and to the extent anybody even did use the option, they generally were using the principal forbearance option. Which to be honest, Ocwen was using also because that was the guideline that everybody was using.
But I advocated for [principal reduction] because I thought, for borrowers who are underwater, over the long-term these are not going to be sustainable. And the program did move much more in that direction. I don’t know that everybody’s taken full use of that, but I think that was a very positive thing.
For a government program, there has to be a cutoff somewhere. One of the frustrations we find with HAMP is that we’ll get a borrower with a DTI of 30, but they still can’t afford their payments and they can’t be helped under HAMP. The reason I’m not too critical of that with HAMP is that there’s nothing stopping me from doing a non-HAMP modification for that person. I may not get the HAMP benefits and the investor may not get them. But there are plenty of people who have a DTI even below 31 that are still struggling and need help and need a modification, and we give those all the time. We just do it outside of HAMP because they don’t qualify for HAMP based on that criteria.