The One Point of Contact, Small Shop Approach

Traditional methods of contacting troubled borrowers - face-to-face and by telephone - remain the best strategies for servicers striving to improve the trial-to-permanent loan modification ratio.

But many servicers might be missing the point, an expert said.

Wade Comeaux, president of Fay Financial headquartered in Chicago, IL, a specialty subservicer created in 2008 to service distressed properties, attended various sessions at the Mortgage Bankers Association's National Servicing Conference in San Diego. He finds that while emphasis on technology, understanding FICO deterioration and negative equity in the home is very important, "at the end of the day, you also have to have a person on the phone that has the savvy and the expertise to help that borrower make the best decision." Unlike traditional servicers, Fay Financial provides each borrower with just one point of contact that handles a maximum of 250 customers, compared with 2,000 customers per representative at larger subservicing shops. And that has generated results.

The company prevented from going through foreclosure 82% of the loans that were already 120-plus days past due when they took them over from the prior servicer. Six months after modifying a borrower's monthly payment, only 4.9% were 60 or more days delinquent, compared to the industry average of 40.8% (OCC and OTS Mortgage Metrics Report, September 2009).

While the debate over when and how to choose a third-party specialty servicer remains open, in Mr. Comeaux's view many servicing shops are not even aware of the fact that they are being stagnant and prey of the old collectors mentality so staff requirements are not updated to respond to market demand today.

Often it is a tough call since employees who may have been an asset for a traditional shop may not be up for the task in today's marketplace, he said. "A lot of those people are lower-educated people who can really just handle one part of the job."

And here is where smaller specialty servicers like Fay Financial come into play. He says his staff is not only 100% college educated but also has anywhere from five to eight years of mortgage market experience. "Because if you don't have someone who can make a decision and steer people down the path to resolution, then they become frustrated, and then you don't get them on the phone anymore, contact rates drop, etc."

And everyone in the servicing industry knows how hard it becomes to re-engage a dropped borrower.

Cary Sternberg, president of Excellen REO, a new full-service asset management unit of Titanium Holdings Inc., agrees that it is a problem to reckon with.

"We are experiencing that because we get in the embarrassing position of saying to the borrower, 'OK, we have been sent out by your lender to help you and here's what we're going to do.' Then we pick up the phone and call to say, 'OK, Mr. Lender.' And the person on the other end of the line says, 'Who are you? What are you calling about?'"

Fay Financial data show it has established contact with over 95% of borrowers of whom most are seriously delinquent or in foreclosure; offers solutions before delinquency occurs based on realistic affordability metrics based and a personal budget analysis of cash flow; and deals with whole loans only, not mortgage-backed securities, which eliminates risk associated with multiple investors in individual loans.