Mortgage Collector Growing as Market Troubles Surge

The tsunami of bad news that hit the mortgage market in the last year is bringing huge opportunities for Dyck O’Neal, a firm that has long specialized in buying and collecting mortgage deficiencies, first and second loans, home equity loans (HELOCS) and promissory notes.

That great growth has also brought challenges as the firm works to keep up with the tide of mortgage debt flooding the market.

Michael J. Cramer, the firm’s president and CEO, said that Dyck O’Neal received $1 billion in referrals last year, three times larger than the year before. The Arlington, Texas-based firm has about 45 employees and a second office in Addison.

It’s no secret that home buyers are having difficulty paying their monthly mortgages. About 405,000 households lost their homes in 2007, up more than 50 percent from 269,000 the year before, according to RealtyTrac, a seller of foreclosed properties. In 2007, more than 1 percent of all U.S. households were in some stage of foreclosure, up from about 0.6 percent in 2006.

Dyck O’Neal clients include Fortune 500 mortgage portfolio investors along with commercial banks, said Cramer, who declined to name the firms. “They need a mortgage deficiency program. There’s a need to sell assets. It’s a great opportunity for us,” he said.

The downside is similar to what collectors in other sectors are saying today­­–consumers don’t have the money to pay off their debt, forcing collectors to be more creative.

“It’s a lot harder to collect on the debt. People can’t refinance, and there is no liquidity out there. You can’t get loans if you have marginal credit,” said Cramer. That’s meant setting up payment plans for debtors instead of garnering lump sum settlements.

And clients are putting more pressure on the firm as more consumers go into foreclosure. “Before it was pennies, now its quarters and dollars,” said Cramer. “There’s much more emphasis on collecting non-performing deficiencies.”

Mortgage collections is a specialized field with only a few competitors. The average debt for Dyck O’Neal is $35,000 to $45,000, and it takes care and experience to confirm the property documentation, such as the chain of title, said Cramer.

“It’s similar to commercial collections. You have to understand the transaction, you can’t just take basic consumer information and start collecting,” said Cramer. Moreover, there is a blizzard of state-specific laws that must be followed.

And the collection occurs during a traumatic time for the debtor. “A foreclosure occurs because of divorce, medical problems, a bad investment. It’s an emotional event,” said Cramer.

That requires a different set of skills from the collection agent than someone working credit card debt. Cramer notes the average Dyck O’Neal agent has 10 years of experience.

The firm was started 20 years ago by Gary A. Dyck and Jori L. O’Neal to serve the mortgage deficiency niche in Texas, a market then growing exponentially due to the savings and loan crisis of the 1980s and the sell off of real estate assets. From 1989 to 1995, the government-owned U.S.Resolution Trust Corporation (RTC) closed or resolved 747 thrifts with total assets of $394 billion.

Fast forward to 2002, the crisis is well-over and Dyck O’Neal is seeking investors to further grow the business. Cramer, who had been buying debt from commercial banks and credit card issuers, liked the Dyck O’Neal niche and the fact it was a local firm. He decided to buy the firm.

“They had the product and I had the people. It was good fit for both of us,” said Cramer.

In his first year as leader, the firm doubled in size and revenues rose 35 percent, he said. The firm has continued to grow and stretch beyond Texas, garnering national clients.

Cramer said that there is discussion of creating a government agency, perhaps similar to the RTC, which would have oversight of the burgeoning number of mortgage foreclosures. Whatever happens, by most accounts, the real estate market is in a severe down turn that will get worse before it gets better. That looks to mean further growth for Dyck O’Neal.