Lenders Searching for Ways to Reach Delinquent Borrowers

Everyone knows that when borrowers stop making payments, they often stop returning phone calls from their home loan servicer as well.

Speakers at the SourceMedia Mortgage Servicing Conference keynote panel here said that their companies are taking proactive steps to try to contact more delinquent and defaulted borrowers, hoping to keep them in their homes or avert foreclosure with a loss mitigation solution. But in most cases, these borrowers avoid responding to phone messages and letters.

John Vella, president and CEO of EMC Mortgage Corp., said the steps taken to increase outreach to troubled borrowers are having an incremental impact. Those efforts include door knocking and sending FedEx packages to get the borrower's attention.

"Between all the 20 things we're doing outside the calls and letters, you probably get another 10%," he said. "You have to be creative and you have to have marketing people on your staff."

David Dill, president of Saxon Mortgage Services, said loan servicers have to play an educational role when borrowers run into trouble. But because the lender is already seen as an adversary at that point, he said it is even more important that counseling occurs before loans are funded. He noted that surveys of loan customers have found that a high ratio of borrowers with adjustable-rate mortgages say they didn't even know their payments will reset. Mr. Dill said servicers need to help educate and remind consumers about the nature of their loan product.

Stephen Staid, senior vice president of default administration at Litton Loan Services, said that many of the borrowers who are facing onerous resets on adjustable-rate and option-ARM products approached their home purchase as investors, even in cases where the house is owner-occupied. He cited a study that found many first-time homebuyers expect annual home price appreciation upwards of 20% at a time when home prices are stalling in many parts of the country. Too often, those borrowers are tempted to walk away from their investment when they find that the housing boom is over.

"We have to be better as a servicing industry at talking them into staying with that loan," Mr. Staid said.

Too often, borrowers who've seen prices fall and have no equity in the property are increasingly willing to walk away and start over, regardless of whether the home was a principal residence or an investment property, he said.

"If they don't answer 200 phone calls or respond to 50 letters or answer when someone knocks at the door, it is going to be a loss," he said.

He noted that the "welcome calls" made to new home loan customers may be more important than servicers typically thought. Borrowers who don't answer welcome calls are three to four times more likely to default than those that do answer the calls. He urged lenders not to give up on welcome calls after several tries, as is commonly the case today.

Mr. Vella said the educational role extends to a lender's customer service agents as well as to borrowers. He urged lenders to make sure their employees are trained about the sort of mortgage questions that come up in communications with borrowers facing default.

Mr. Vella also said that EMC has a fraud prevention team that works with the loan servicing shop trying to deal with what is coming into the operation. EMC representatives have even attended seminars that pitch get-rich-quick schemes in real estate to learn about the mindset of what some people are looking to do.

Asked about offshoring customer service work, the executives on the panel all expressed reluctance to conduct customer service calling work from abroad.

"It would have to come a long way from where it is today for us to do customer interfacing," Mr. Dill said. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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