Technology Does the Heavy Lifting for Lenders
Mortgage loan default and foreclosure volumes are still on the rise, the pressure to get loans modified or refinanced is intense, and it's all happening while regulatory and investor changes are coming fast and furious. Technology is growing more impressive, especially in the current climate when lenders and servicers have to do more with less and within timeframes that can make the difference between keeping a loan on the books and losing it to foreclosure.
Foreclosure is, of course, a lose-lose scenario, says Duke Olrich, CEO of DRI Management Systems, Inc. in Newport Beach, Calif. "Lenders lose money and borrowers lose equity and, in most cases, borrowers lose in other ways, too. Anything that can be done to keep the loans out of foreclosure and performing, even at minimal levels, is good for everyone associated with the process, and technology is mission-critical in making that happen."
Mr. Olrich believes technology is good at making people more effective, especially when coupled with some good strategies. He says one strategy being employed with some lenders is the redeployment of human resources away from loan origination, which is slow right now, and toward loan servicing, which is not.
"Technology can come to the rescue if the right technology is employed. It makes sense, when you think about it, because loan origination people understand borrowers and they understand the business."
The technology piece that can help it work well is referred to as a "loss mitigation decisioning platform" and it is a rapidly evolving state of the art. The loss mitigation decisioning platform takes a lot of guess work out of the process by presenting the loan counselor with careful scripting and economic models for various alternatives that will be available to them.
"It is a far cry from having outbound phone operators with scratchpads and calculators, and the platforms enable a counselor to easily handle 50%-75% more loans than would otherwise be possible," says Mr. Olrich. "In addition to making a transition easier for someone from the origination side of the business, it simply takes some of the 'people' out of the 'people-intensive' equation that was loan servicing in the old days."
With a small amount of information, such as that derived from a few simple questions, the loan counselor using the loss mitigation decisioning technology can accomplish a great deal using the built-in economic modeling capability. The system creates economic scenarios for the counselor to have at their fingertips with just a few bits of data entry. If the borrower expresses the desire to stay in the property and work out an arrangement, the system goes to work, presenting a list of questions to be asked by the counselor.
The two basic alternatives when the borrower wishes to remain in the home are a payment plan or a loan modification. In the payment plan alternative, the counselor gets a clear picture of the borrowers' gross income and basic expenses to come up with a payment that can be sustained over time. The system does the math and determines what the target payment will mean in terms of investor requirements and guidelines, and presents the scenario to the borrower.
For example, a plan with reduced payments naturally creates an amount in arrears every month, a shortfall. If the loan is with Freddie Mac or Fannie Mae, the system knows what their requirements are for making up the arrearage, usually involving a modest downpayment and the rest paid back in six or so months.
Many times a payment plan won't work. However, a loan modification may and the model will recommend the alternative solution. The counselor reviews the loan modification suggested and within minutes is able to present the borrower with a plan that meets the investor's requirements, allowing the process to be implemented virtually on the spot. This sort of negotiation and modification process used to take days, even weeks, along with committee approvals and other red tape. "These days, the technology does the heavy lifting." (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/