Framework Solution Helps Servicers Comply With HAMP and Beyond

First mortgage lenders started recycling loan origination expertise by transferring, hiring and training originators to make up for shortages in the servicing side of the business.

Now mortgage process based solutions that incorporate error-proof loan origination case management options transferable from origination to servicing and vice versa are gaining ground into the future.

Such flexibility is the way to not only solve the mortgage business problems of today but to extend technology use for the business problems of tomorrow, says industry veteran Tony Young, the financial services industry solutions principal of Pegasystems Inc., Cambridge, Mass.

Versatile platforms that can be seamlessly used by more than one side of the mortgage business and allow users to track down, review and deliver documents for both loan servicing and origination needs.
It also means that when the mortgage market starts to pick up users can easily move their focus back into originations. And it will be full circle since it’s the end-to-end mortgage process that goes “green.”

Craig Focardi, TowerGroup senior research director for banking, agrees. “Servicers are at a crossroad when it comes to investing in loss mitigation software,” he says. What they need is “business process management technology with an integrated rules engine” that helps speed up processing, reduces costs, errors and losses in the end-to-end loss mitigation value chain.

Pegasystems says it is taking that route with a loss mitigation framework that ensures user’s operations comply with government-sponsored programs such as the Home Affordable Modification Program.
The new Loan Loss Mitigation Solution is powered by business process management technology designed to process loan modifications, short sales, deeds-in-lieu of foreclosure and foreclosures in ways that are specific to lender-servicer’s loss mitigation programs.

In its attempt to avoid foreclosure for an estimated 7 million U.S. homeowners who are either behind in mortgage payments or have started foreclosure proceedings, the government has sponsored several programs including the Second Lien Modification Program and the Home Affordable Foreclosure Alternatives Program, and continues to update HAMP.

Servicers have to update their systems accordingly, Young says, to ensure loss mitigation process transparency, end-to-end document and data management controls and single case reviews. It is what the tool was designed to offer, Young says, and so far at least one mega-servicer user reported up to a 150% increase in loss mitigation processing ability and reduced staff training time by approximately 60%.

Features include an integrated document and data management option and a loss mitigation program configuration wizard that assists analysts to configure or add new government, investor or bank-sponsored programs directly into the application. The multiple loss mitigation option allows users to pursue various options at the same time.

In the past 18 months the crisis opened a window of opportunity for change.

Lending industry rules and regulations have “and will likely continue to change,” Young says, so vendors need be one step ahead. What mortgage servicers need is technology that allows them to quickly adapt to new requirements, improve mortgage servicing operations efficiency and automation.
Pegasystems takes a process-based or frameworks approach to respond to demand for tools that would allow medium- to large-size lender-servicer shops to react to the market faster, Young explains. Frameworks represent up to 50% or 60% of the basic structure of an application a user needs, to complete it users can customize the rest of the software specific to the way they run their business. In addition it makes implementation cost effective and is available “via the cloud.”

The Pegasystems motto is “agility,” he adds. It makes specialization easy that 20% of the time business is not done the traditional way.

Young told this publication that framework system agility motto has earned Pegasystems some fans. Up to 70% of its annual licensed bookings are repeat buys. For example, banks that may have used the technology for modifications would add other process specific options such as short sales, foreclosures, credit cards or debit cards.

In the servicing world collections and other servicing processes are very data centric, says Pegasystems’ Michael Smaney. So instead of coding the data Pegasystems uses a flow tool that helps redirect the information in different ways as it pertains to specific programs such as HAMP. The focus is in automating the process by integrating a business process management engine and a regulations engine “into an Excel looking form” that eliminates the need to have separate coding. It leverages existing data systems to create an automated, process-centric platform.

The software package approach strings together existing legacy systems and documents using “point solutions” to connect them.

The framework approach, which according to Young has been a success in other financial industries such as credit cards, offers the option to purchase software that can be used in both lending and servicing, or the option to add short sales or other service features to their loss mitigation framework. Workflow management is key. And process-centered technology allows users to proceed step by step to eliminate work errors and come up with defect-free loans.

“It is just bubbling up now,” Young says.