Servicing Standards, Regulations, Increase Demand For Training
Current and expected regulatory compliance requirements and loss mitigation challenges are pressing servicers to address shortages in well-trained, experienced staff.
Supporters say mortgage servicing standards will help increase workout efficiency. But there is a catch.
“It goes back to the issue of training,” says Rebecca Walzak, CEO and president of Walzak Consulting. "It is very difficult to train people."
Compliance demands banks change loan processing often and fast. They may have to change everything within 30 days, which in turn demands technology systems that can be easily updated to support those changes and the staff that has to execute the work. “Training is critical," Walzak says. One of the issues that became evident because of the large scale modification process is that servicers did not and still have a shortage of people that are trained to do modifications, or take on the thousands of calls and loan processing demand of the recent past.
According to most economists capacity issues to prevail at least in the short term, thus fueling another type of demand. She agrees with insiders who see advanced technologies an effective way to help measure a firm’s ability to process defaults and modifications or provide other loss mitigation solutions. Technology can enable loan processors understand their job, provide compliance related guidance, monitor the mortgage servicing process, staff performance and the efficiency of vendors who act as third-party service providers. Automated reports bring invaluable insights servicing managers can use to improve servicing efficiency.
Technology improvements are part of a variety of more drastic changes that seem unavoidable. veterans like Walzak expect to see more change "toward a kind of standard approach in measurements and process, rather than just rules and regulations.” Better mortgage servicing standards are bound to improve the efficiency of ongoing efforts to regulate the industry. The challenge appears to be in creating the right structure of operations.
Until now the focus has been on improving the industry through more regulation, says vice president of bankruptcy operations for Prommis Solutions, Tina Jones, but these attempts to serve the homeowner at full capacity while pushing for new regulation changes way too often were counterproductive. “We never caught up with ourselves and servicers just kept these loans in the market spinning.”
Regulation and the need to ensure full compliance month-over-month is affecting the mortgage servicing process.
The core, the fundamentals around modifications, short sales, or deed-in-lieu have not really changed, says Ravi Ramanathan, CEO of DecisionReady, yet servicers have to be prepared to change and update their processes almost every day, which is more challenging when they do not have enough experience. Servicing choices may seem basic: Should the servicer make three phone calls a month or five phone calls a month? Should face-to-face interviews be scheduled in the second month? How to proceed if the property is vacated? But today process details are also being driven by frequent changes the rules and regulations.
If the servicers continue to do servicing 101, default servicing 101 and the overall training of their associates, and implement strong quality control measures, “they are in good shape,” he said. Auditors review servicer compliance with regulation changes in the short and the long term. It means servicers have to create a month-over-month historical snapshot of all the policy changes along with effective management and accurate scorecards on a loan-by-loan basis.
Both regulatory and capacity challenges have changed staff requirements, says John Vella, COO of Equator. The thousands of new hires who “were thrown into the fire” with little training would often have the burden to do a loan modification bringing people without underwriting experience to handle loss mitigation cases. On the real estate side, servicing shop employees who never sold real estate before were expected to handle short sales. The skill set and the demand for the quality of the people, he says, just is not there because "not that many people" have the knowledge to do both a loan modification and a short sale.
The irony, he says, is that now “borrowers are probably more in tune” to what their options are than many of the people they are negotiating. The change in the servicer-borrower dynamic is such that sometimes “it’s almost as if the tables have switched.” Lack of consistency throughout a big operation combined with the lack of capabilities, the training and the experience, makes it almost impossible for servicers to keep up. It means staff training challenges and the shortage of qualified staff while the delinquency rate remains high indicate training will be a long-term challenge for servicers.