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Servicing Outsourcers May Not Grow Fast Enough for New HARP

Changes to the Home Affordable Refinance Program fashioned as “penalties may work better than incentives” may soar current demand for third-party component servicing, which insiders say is shaping “the new tomorrow” of the mortgage servicing process.

If finding efficient refinancing solutions was center stage at the Mortgage Bankers Association annual meeting in Chicago this month, changes to the Home Affordable Refinance Program challenge lenders and servicers to refinance more qualifying borrowers at their expense or face certain penalties.

The previous version of HARP, which aimed to solicit current borrowers and help them refinance, was not successful. “None of the mortgagors bought into it,” said Lance Perry, the loss mitigation director of the National Creditor’s Connection Inc., Lake Forest, Calif., who also is responsible for the outbound and inbound call center operations, quality control department and mailroom.

HARP’s lifting of the loan-to-value cap and origination fees on performing Fannie Mae and Freddie Mac loans in cases when the property is worth less than the mortgage loan “is going to blow the lid!” he said. “It was the last regulation change needed to really get the program going” and in the process further boost demand for third-party servicing.

These changes are forcing servicers to qualify more homeowners instead of just paying lip service to the program, as they have been doing with the previous version of HARP.

Perry, who worked as a servicer for the past 15 years, argues that until now HARP was bound to fail. “It was a kind of Catch-22. How interested can a servicer be in refinancing performing borrowers when the immediate outcome of lower mortgage payments is less servicing revenue? That’s why it has been so slow to get off the ground.”

NCCI has already seen interest in HARP and refinancing options from mortgage insurance clients who want to offer the option to their borrowers. Meanwhile, the mortgage companies “have just started to get in place departments” to be able to handle borrower solicitation, processing and underwriting. “There’s some conflict of interest” including the requirement that does not allow a mortgage holder to solicit its own customers creating a need to hire another company to refinance the loan.

It means many mortgage banks will have to rely on companies like NCCI to get HARP updates, file required documentation, comply with the new regulation and speed up the process of mortgage refinancing as lenders use their discretion to reach a final decision. During the past year and a half since HARP came out there was no pressure to comply. But the updated HARP has changed that, Perry says, and “as long as there’s pressure by the GSEs to do this and to be audited by it, the servicers will do it.” The downside, he says, is the potential risk of creating an incentive for some performing borrowers to “strategically default because of desperation.”

Richard Rodriguez, NCCI’s CEO and president, agrees that HARP enhancements may be too little, too late, at least a couple of years too late. Nonetheless, he expects to see more homeowners assisted through HARP as servicers maximize the value of their borrower engagement efforts, at the doorstep.

It is what NCCI has been doing for the past two years since HARP came out. Decades ago Rodriguez decided to specialize his company in face-to-face borrower contact as the best way to be ahead of the game. NCCI was ready to cope with the current crisis-ridden housing market that has generated “sharply higher market demand" that requires it to grow fast.

The mortgage servicing outsourcing company said it has tripled the size of its loss mitigation staff, doubled the nationwide field representatives network, is investing in further updates to its telephony and Internet systems, and now added a new Customized Modification Fulfillment Service tool to its component-servicing platform. The new tool is designed to assist lenders comply with regulatory guidelines, reduce loan losses by combining the efforts its network of professional field representatives with the efforts of its loss mitigation staff. The end-to-end workout process starts once servicers deliver a delinquent borrower’s file. It includes mail services, document imaging, inbound/outbound call campaigns, appointment setting, document retrieval, signature services, quality control and a completed modification package.

“Component service servicing” strategy that continuously adds new features to the services package has been NCCI’s natural progression during its 22 years of service and what allowed it to stay one step ahead in a volatile market, Rodriguez said. “A big piece” of this effort is to “meet the borrower at the doorstep,” communicate often and intervene early. The whole mortgage industry is moving towards that strategy and along the way implementing as much technology as possible. It will be the way to the future at least for another few years, he said.

At present the focus is on HARP, which “will really take off” in the next two or three months, added Perry, .
Before the expected refi boom takes off, however, servicers must contact these borrowers following a number of steps. Industry data show only about 20% of borrowers respond to direct mail so “to get hold” of the remaining 80% servicers need to be at their doorsteps and engage face-to-face with millions of homeowners nationwide.

According to Rodriguez, servicers are now well aware that unless they meet borrowers face-to-face they cannot know for certain: Are they in or are they out? Or whether they are able to and willing to commit to their mortgage. The sooner those questions are answered the better for everyone, he argues, which is why demand for customer-friendly and servicer trusted third-party service providers like NCCI should fluctuate in time, “but is not going anywhere.”

“For many years servicing was in autopilot,” Perry said. “This is the new tomorrow.”