Technology Key to Managing Rise in Defaults
Default servicing costs have increased substantially in the last several years, resulting in a push to focus more on loss mitigation.
There is currently a disconnection between the collection component of the default process and the attorneys who handle the proceedings, which slows down the process and impedes resolution through loss mitigation, observes Mary Hunter, chief executive officer of ACEX LLC.
"We've seen a push in technology on the origination side at the front end. If you look at anybody who does both the front end and the back end, they don't have a focus for the servicing end. They do not cater to loss mitigation or loans in default," said Ms. Hunter. "There needs to be a push in technology to get those people who are processing the loan connected with law firms and attorneys."
Particularly when it comes to default servicing, knowledge sharing with network partners is very good for business, she says. It is important to have a system that services as a communications tool between industry network partners. Servicers, outsourcers, law firms, GSEs and investors all have critical personnel and business information to communicate both internally and externally on a daily basis.
The Chicago-based company's solution was created to fill an empty niche by serving two critical needs. It streamlines the task of storing and managing contact information and it provides a means for posting and sharing documents that are used in the course of daily business. The Web-based platform organizes contact information into multiple levels by company, by department and by individual.
"In simplest terms, it is a real-time phone book and bulletin board for the industry - though it has much more to offer. The system keeps track of personnel changes, turnover, responsibility changes," Ms. Hunter said.
"A lot of times, people don't know where to go and who to contact. Our software provides contact information, business procedural information. It shows who is handling loss mitigation for a specific servicer or law firm. This is a way for them to communicate and maybe come up with a plan to fit the borrower."
The solution can operate as an intranet, extranet and portal for the end user. ACEX's navigation page streamlines the workflow process by enabling each stakeholder to have access to current crucial information on demand, update in real time and link to frequently used sites with a few clicks of the mouse.
"Each company can 'post' information internally that it needs to disseminate among internal staff, or externally to share with business partners. It also serves as an interface to online activities such as e-mail and accessing Web links."
It's important to show borrowers that there is help out there. Servicers should provide contact information and the specific names to call when a loan is in default. It is about communication between all of the players involved in the default process and the borrower. Servicers should post counseling firm contact information on their websites to show they are available to help borrowers, she said. "That will remove the fear borrowers have, which will be better for servicers, because it reduces their losses and invests in communities so houses aren't sitting vacant."
The industry has already seen a huge spike in referrals to law firms for foreclosures. But more are being resolved through loss mitigation, said Ms. Hunter. "The key is for the industry to get them before they go to the attorneys. Once they get referrals, the costs increase and those are costs that have to be recouped by the servicer. The Fair Debt Collection Practices Act adds another layer of complexity. You have to get out there and work with borrowers."
It must be a collaborative effort between everyone in determining best practices and putting them into play. "Technology, our solution, is a communication tool, not just for your shop but for all of your business partners - your attorneys, title companies and everyone on the servicing end. You have to establish best practices together. People want to find answers and resolve their situation searching the Web. If you are not providing the right contact information, they will go somewhere else. A website is no good if you can't keep it updated."
Anytime a loan goes into default, the costs are substantial. Once payment stops on the loan, the lender begins losing interest and incurring costs. Going through a judicial foreclosure and owning the property in REO increases the costs and expenses. There are maintenance costs and property taxes to deal with along with everything else on the loan.
On the servicing end, companies need to participate in informing the borrower on what they can do to mitigate their losses. "It's the credit rating and their ability to move on with their lives. Generally, people bounce back from bad situations, especially when they are temporary. You must have good customer service. Borrowers are likely to buy other products and work with you again when they recover."
Technology should be used to work out more loans. If a borrower can pre-qualify for a credit card or a mortgage loan on the front end, they should be able to use technology for a payment plan or default resolution on the back-end, said Ms. Hunter. "We have the technology to do it. There are very secure systems utilized in house. What if the borrower could use it in a self-serve fashion?"
A borrower would only have to answer a few key questions to possibly qualify for a payment plan. Energy would then be spent to direct the borrower to the appropriate staff member or the next step would be contacting the borrower by phone. There would be three or four alternatives to get borrowers excited and to feel that they are more in control about resolving their debt. A public website could reduce time and money on the backend as well, she said.
"It's hard to develop best practices and industry standards. It doesn't happen overnight," said Mr. Hunter. "There has to be a shift in the paradigm of how the industry has operated and you have to start slowly. It takes one brave servicer and their attorneys. Once a movement starts, you can gain momentum and show how the bottom line is affected by it. Because defaults are increasing and loss mitigation is blossoming, you need to jump on the bandwagon with technology so you can handle these loans." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com