New regulations coming down from the Dodd-Frank Act and the recent news of so-called “robo-signers” and problems with foreclosure affidavits will help fuel continued growth of the specialty mortgage servicing

sector, so says Steven Horne, CEO and founder of Wingspan Portfolio Advisors, a Dallas area-based specialty and component loan servicing firm.

Specialty servicers step in for mainstream mortgage servicers on loans with specific needs, typically either when the loan is in default or on the verge of foreclosure. Those servicers generally are paid based on their success in rescuing loans from foreclosure and helping them revert to re-performing status.

The current foreclosure documentation crisis plaguing the mortgage realm will lead more servicers and investors to seek specialists to prevent loans from moving to foreclosure in the first place, Horne says.

“At this point, it appears every state is affected. Investors and servicers alike now have greater motivation than ever to ensure both that the loss mitigation process is fully documented and effective and that all legal processes, including foreclosure, are compliant,” he said. “We have been preparing for an onslaught because of the Dodd-Frank Act, but these latest developments in foreclosure documentation bring an entirely new dimension to the demand for our services.”

Horne explains that the Dodd-Frank Act itself is a game-changer, not just for mainstream lenders and servicers but also for his specialty niche.

“Though most of the financial reform law’s implications have not yet emerged, Dodd-Frank will bring several new aspects to the loan servicing landscape,” he said. “These include empowering bond investors and other stakeholders to have a greater say in the default servicing process, along with the methods used and who uses them.”

Dodd-Frank shines a spotlight on the treatment of defaulting loans and giving more control to entities with at-risk funds in both individual transactions and loan pools.

The growth of special servicing is but one of the new realities materializing from the mortgage morass, Horne continues, especially as the fine points of Dodd-Frank become evident and the roles of special servicers like Wingspan are magnified.

“In addition to the full transfer of default servicing responsibility to special servicers, lenders are aggressively using ‘component servicing,’ where only certain tasks are performed by special servicers…at even earlier stages of delinquency,” Horne said. “This strategy, combined with the full outsourcing of loans considered hopeless, has resulted in tremendous growth for Wingspan and the sector as a whole.”

Case in point: Wingspan has expanded its operation several times over the last three years. The company now occupies roughly 40,000 square feet in the Dallas suburb of Carrollton.

Just as bond investors are finding that specialty servicers are a more effective option, the same holds true for lenders whose ability to foreclose and resell properties hangs in the balance because of documentation irregularities and “robo-signings” of faulty foreclosure affidavits.

“With the validity of completed foreclosures now in question and primary servicers struggling to comply with legal requirements in a cost-effective manner,” Horne said, “it is imperative to clear any clouds on title and to look for ways to keep motivated borrowers in their homes with foreclosure alternatives.”

He goes on to say that the specialty servicer’s modus operandi is very different from that of a typical loan servicer.

“Our niche is very high touch, allocating far more time with borrowers than the primary servicer could ever afford to spend,” said Horne, an attorney and former Fannie Mae director of servicing risk strategy. “Specialty servicers aren’t typically paid until they succeed, so it is not a numbers game for us. We monitor call times closely just like a primary servicer does, but instead of making as many brief calls as possible, we want to make sure they are spending plenty of time with each borrower.”

The specialty and component servicing sector already is helping the nation rise from its ongoing economic slump, Horne notes.

“Thousands of families are still in their homes because options other than foreclosure were found. Our experience has been that if the borrowers truly want to stay in their homes, we can most often find a way to make that happen and get the loan back to performing status,” he said.

Horne added, “The results are evident in restored loan value, fewer houses in the national inventory, and borrowers preserving better credit situations instead of being shut out of the housing market for five or more years because of a foreclosure.”