Realtors' short sale ally: mortgage insurer?

An ongoing concern during the housing downturn has been that loan servicers aren't helping many borrowers who might be able to avoid foreclosure through repayment plans, loan modifications or short sales. Even when these alternatives would save lenders money, borrowers may still end up in foreclosure -- in some cases simply because servicers aren't staffed to handle the workload involved in evaluating each situation on a case-by-case basis (see previous post).

That's one reason FDIC chairwoman Sheila Bair has urged loan servicers to engage in wholesale workouts with troubled borrowers, and loan servicers have adopted guidelines for streamlining the process. Members of the HOPE NOW industry alliance of loan servicers say they've done about 1.4 million workouts since July. But a recent report by the State Foreclosure Prevention Working Group suggests that the number of troubled borrowers diverted from the foreclosure process remains largely unchanged, at about one in four.

Mortgage insurer Radian Guaranty Inc. apparently sees room for improvement, having launched a new Web site the company says can offer up customized workout arrangements based on a borrower's specific circumstances.

Radian has mailed out brochures to borrowers who are behind on mortgages the company insures. Each brochure provides unique ID code that the borrower types into the Web site along with their ZIP code for "a personalized summary of the options that may best help you."

Radian's even offering to help facilitate short sales -- in which it may absorb all or part of the loss -- by instructing borrowers to have their realtor call the company toll free (the number is (800) 523-1988 x1243) to discuss the probable final sale price and anticipated net proceeds. If the borrower refers their realtor to Radian, that authorizes the company to discuss details like the amount owed, Radian's approval requirements, and other information needed to work out a resolution.

Of course, the mortgage servicer has to sign off on any deal, and borrowers may get stuck repaying some or all of the shortfall in a short sale. Still, this looks like an interesting way to help loan servicers handle some of the grunt work involved in doing workouts, or at least get the ball rolling.

There may be nobody on the planet more attuned to the need to stem losses from unnecessary foreclosures than private mortgage insurers. Radian is one of three companies facing the threat of losing their ability to write new insurance on loans guaranteed by Fannie Mae and Freddie Mac if they don't raise additional capital to counter rising losses (see story).

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