The million-dollar question

I happened to catch a few seconds of a game show while playing with the television remote (clicker to most of you) the other night. It was fascinating to see how engaged the television audience was as they watched a man they didn’t know make a gamble that could, according to the show’s producers, make him or cost him thousands of dollars. Should he make an attempt to answer the next question or just take the money and run? What would he do? The pregnant pause seemed to last forever. I don’t know what he did; I was busy starting this column. But the point is, a man was faced with a million dollar question and the rest of us were on the edge of our seats waiting for the answer. I suspect that’s how the Financial Crisis Inquiry Commission is—right on the edge of their seats—every time they ask the question: “Why didn’t anyone see this coming?” Or maybe not. I suspect they know why nobody saw the crisis coming. I think it’s pretty clear that if it’s not your problem it’s not really a crisis, now is it? And as long as you can keep dodging bullets, as Countrywide did this week on a procedural mis-step by investors intent on taking the company to task for loan modifications (something the government cannot allow to happen if it hopes to keep servicers modifying those loans for troubled borrowers), then it won’t be your problem. But it is a problem. For all of the millions the industry has spent on risk mitigation and forecasting, we can still get blindsided by a sudden downturn that acts like a depression. It’s really like no one saw it coming. Either that or the people we employ to use these expensive forecasting tools spend their days staring at them in wonder as if they were the monolith in 2001: A Space Odyssey, which I find unlikely. I guess I can understand it on the origination side. When people are paying you for originating a product and threatening to fire you if you don’t sell it, then you sell it. And if you’re a farmer who suddenly finds a huge garden center willing to pay top dollar for your manure, then you load that crap up. That’s just business. I find it harder to believe on the servicing side of the business. Delinquency is to a servicer what a grand opening sale is to a retailer: a huge jump in business activity with a corresponding increase in profit. You would think they they would have been watching vigilantly for signs of distress in their portfolios, looking forward to helping those delinquent borrowers pay the extra fees associated with being late on their payments. In fact, I would think that this would be such an important part of their business that they would plan in advance for how they would handle a landslide of defaults. Instead, we heard tales of loading docs filled with unopened cases filled with documents from borrowers in trouble that were never opened. Deals that eventually slid so far into default that the borrower just threw them the keys and walked away. Or am I getting this story wrong? I’m currently working on a column for the print edition of HousingWire where I hope to get deeper into it. Did the mortgage loan servicing industry get blindsided along with the rest of us? Did they fail to invest in the tools and people necessary to deal with the crisis? Feel free to contact me with your thoughts. Rick Grant is veteran journalist covering mortgage technology and the financial industry. Follow him on Twitter: @NYRickGrant