What's Really Causing the Backlog in Loss Mitigation?
It’s like running on a treadmill. When tackling their backlogs in mortgage loss mitigation, a lot of lenders are expending a lot of effort to end up no further down the path than where they started.
Frustrating? Absolutely. Costly? You bet. It’s enough to make any lender wonder: When it comes to loss mitigation, is there an end in sight? The papers say it’s going to be a while before the industry catches up on backlogged files and a lot of experts predict another wave of defaults ready to crash down on us.
What’s really causing the backlog in loss mitigation? Some say it’s because of the constant and frequent changes in local, state and federal guidelines. Others claim that staffing constraints are the cause. The conjectures are many: call center imperfections, flaws in document requests, and variances in the numerous different systems of record. That’s just to name a few.
The truth is simple. The backlog in loss mitigation is due to all of these issues. Most lenders and servicers have not been equipped to handle the myriad of difficulties that have arisen throughout the loss mitigation process. Issues around these initiatives continue to make headlines as servicers of loans struggle to improve conversion rates from initial contact to completed workout, all the while maintaining compliance, which is a job in and of itself. If lenders and servicers were equipped to handle these issues, we probably wouldn’t be seeing this much of a problem.
The real culprit of loss mitigation backlogs is lenders’ and servicers’ lack of expertise in effectively handling the numerous challenges associated with the process.
You can’t really blame lenders and servicers. They simply weren’t created to handle these issues. The difficulties and challenges that stem from these scenarios aren’t just posing huge staffing challenges to servicers, they’re also increasing risk on an already pricy proposition.
It’s not a simple equation. Some question whether loss mitigation processes really mitigate losses.
Others suspect the loss exposure is being further compounded due to the requirements. There are so many intricacies and many of the costs associated with this work were never factored into the original servicing business model. That’s what makes managing loss mitigation operations in-house such an expensive proposition.
The initial strategy for so many lenders and servicers was to simply create an off-shoot of the collections department and try to outrun the explosion of borrower requests with more staff. Although an understandable reaction, this strategy has not proven to be an effective one. Volumes have not subsided and success rates remain relatively flat.
Fortunately, we are beginning to see more and more servicers using a new strategy—one that leverages expertise to create a true cost savings and value-add to their businesses. That solution is outsourcing. Just as servicers have used retail solicitation call center solutions in the past and present, they are now outsourcing certain other components in the loss mitigation process—and seeing improved results, as well.
This is because good loss mitigation outsourcers have processes down to an exact science. Their proven borrower outreach techniques produce higher conversion rates. Their flexible staffing models allow for easy, no-commitment scalability. But most importantly, their expertise based on time-tested processes can get the job done more cost-effectively for the servicer or investor than an in-house team. It’s the same reason you call in a technology expert rather than trying to fix a computer problem on your own.
Sure, it can be done, but how much will it cost you to “save” the cost of the expert?
It takes a lot more time, effort and capital to create an effective loss mitigation organization than most lenders and servicers can afford to invest—and that’s not even factoring in the expertise component.
Outsourcers have heavy investments in the technology that supports their infrastructure. Chances are, their standards are also higher than those of an in-house operation, due to the fact that they need to compete for your business, unlike an in-house organization. Loss mitigation outsourcing vendors all compete at a very high level and are required to meet the demands of very stringent scorecards, as well as contractual performance obligations. In other words, they have to be good, they have to be qualified, in order to succeed.
What’s more, loss mitigation outsourcers have to show a cost savings to the servicer in order to be awarded a contract. They way they do this is also through competition—this time when a request for proposal is announced. When businesses compete for these customized components, everyone wins—the servicer, investor and borrowers. Whether it is call center operations, printing for letters and mail campaigns, document generation or door-to-door services, outsourcing vendors have repeatedly demonstrated that highly specialized, niche business units can complete tasks in large scale for multiple clients at a fraction of the cost.
The value of outsourcing for servicers can be significant when you factor in all of the components.
You can use an expert team of professionals to handle your short sales, loan modifications, deed-in-lieu programs, or any other scope of the process. These workout solutions can all be handled through an expert component loss mitigation outsourcer. A good outsourcer’s expertise will cover virtually every pertinent business aspect of loss mitigation, and that expertise will ensure the most efficient systems, up-to-date compliance, improved performance metrics and increased borrower contacts.
While there may not be one single methodology that all would agree on, recent research indicates that outsourcing vendors are continuing to bring improvement to right party contact and borrower outreach, document perfection, completed workout percentages and overall customer satisfaction via relationship building. The more retail, consumer friendly approach to loss mitigation and borrower outreach subscribed to by many component loss mitigation outsourcers also seems to far outperform hard line collections strategies of years gone by.
Once a rarely talked about part of the servicing process, loss mitigation has now become a permanent piece of default operations. Like any business organization, a loss mitigation department’s lack of expertise can strip away at profitability on day-to-day basis. When lenders and servicers choose to alleviate the strains and challenges caused by lack of expertise, they can get back to doing what they do best…building a business based on new asset growth and servicing those loans to ensure that they continue to perform.
Steve Collier is vice president of loss mitigation for Prommis Solutions.