Progress Emerges Despite Staus Quo in Workout Techniques
Dave Vida of LenderLive Network is one of many in the industry who does not see “anything too new in the loss mitigation space,” but recognizes it has been transformed by the foreclosure crisis. Those who need assistance the most are hardest-hit funds and state-level agencies but since their programs are fundamentally designed to keep the customer in the house their options are limited at this point when the economic and job market recovery is not very strong, he says.
Loan investor guidelines continue to limit the types of loss mitigation assistance lenders can provide to distressed borrowers, says Joe Dombrowski, chief mortgage strategist at Fiserv Lending Solutions. As a result homeownership retention options, trial modifications, long-term repayment plans and refinancing programs, along with liquidation options for borrower who no longer wish or can stay in the home “have strict rules for qualification and execution.”
Liquidation options, such as short sales, deeds-in-lieu and short payoffs “can be just as complicated and take as long, or longer, than some retention options.” Ever since the eruption of the foreclosure crisis which increased awareness of the fact that many of the same tasks performed in the origination process are duplicated in loss mitigation lenders and servicers are constantly updating their operations to bridge the gap.
Lenders are employing technology to to find the best fit for the borrower, a requirement that has always been part of the loss mitigation protocol, he says.
A relatively new development is the new approach to borrower communication management that focuses on improving borrower satisfaction and reducing lender compliance risk as they try to adher "to a complex set of rules.” Technically the requirement to collect the borrower’s financial and employment information, verify it, determine property value and the best loan workout fit for the borrower was and is standard procedure, its execution however, as the past years of harship have clearly shown, is another matter.
The post-crisis transformation has more to do with the technology tools, he says. Today tools include engines that determine borrower qualifications, generate documents that are screened for accuracy and compliance and workout management options “to ensure the borrower is paying as agreed” and secure electronic signature capabilities.
The biggest achievement so far from the technology perspective according to Dombrowski is the “fully electronic ingestion” of borrower information that allows a borrower “to type information directly into a website or fax or email or upload a document from nearly any device,” and then transfer it to a borrower qualification system that ties in electronic document delivery and signature capabilities.
Lenders will continue to focus on technology that reduce data handoffs, decrease compliance risk, improve borrower communication, and store data for the life of the loan. New loss mitigation programs such as Fannie Mae’s Mortgage Release use technology that is flexible enough to accommodate future loan changes and make the workout process “far less stressful on staff and borrowers alike,” Dombrowski says.
Everyone in the industry agrees that servicers’ focus on the borrower has changed the way they do business, Sanjeev Dahiwadkar of IndiSoft told this publication.
For example, in the past two years the role of mortgage counseling and servicers’ approach to financial literacy has changed dramatically, he says. “Servicers now see them as trusted third-party partners that help servicers communicate clearly with the homeowners and ensure their participation in the loan workout process,” increasing borrower retention and homeowner participation to historic levels.
Times have changed due to a combination of necessity and the proven benefits of counseling for borrowers, lenders and everyone else in a mortgage transaction. In the past servicers used to deal with failed phone calls to homeowners and other borrower trouble, he says, “counseling is making homeowners more accessible to servicers, who are now willing to pay more dollars for counseling services.”
Regulation also plays a key role. Part of the national mortgage settlement agreement between the nation’s attorneys general and the nation’s top five servicers, he says, is a monetary incentive for servicers. “Servicers are credited for every dollar spent on housing counselor agencies to assist foreclosure risk homeowners in line with the specific loss mitigation requirements they have agreed to abide to in the settlement.”
Before the foreclosure crisis if homeownership retention was not possible servicers would consider the traditional workout techniques available starting with refinancing, short sale, or deed-in-lieu, he recalls. One change turned commonplace across the industry today is the rent-to-own solution Dahiwadkar calls “a grace approach to distress and foreclosure.” The number of lenders and servicers who choose to enable seriously delinquent borrowers to rent their foreclosed house “and offer them the option to repurchase the property five years down the line at market rate is up,” he says, indicating “this still new midway solution, or loss mitigation with a twist” is taking hold in the long run.
“These sort of quiet short sales that were unheard of before the crisis are very popular now. Loss mitigation has become very creative and it is based on the belief that this borrower-renter stays in the house solution is better for everyone because it offers financial and social benefits,” he says. “Nobody has to know the borrower is going through a difficult time, and their children continue to live their normal life.”
He views the new approach to counseling and offering former homeowners “the opportunity to rent, repurchase and not disrupt their lives,” the two most dramatic loss mitigation market changes of the recent past. “Both developments, which were unheard of before, are now becoming the new normal.”