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Using Automated Decisioning to Get Loan Mods Right

Bethesda, MD-Late last year it was reported that loan modifications done earlier that same year were again in default. Overture Technologies here has launched a new tool dubbed Mozart for Special Servicing to help servicers use analytics and decisioning to get troubled borrowers into the right loan modification the first time around.

Specifically, Mozart for Special Servicing uses automated decisioning technology and rules systems to re-evaluate the loan to get the borrower into the right modification. “There are a couple of things that are unique about this offering,” said Linda Simmons, general manager of Overture Technologies’ Mortgage Finance Solutions. “For instance, we include a full credit parse instead of just a FICO score. We also include multiple valuations because we don’t think the industry will or should bank on one valuation. When the servicer talks to the borrower we want them to have a good set of information on the borrower before having that talk.”

And with Credit Suisse estimating another 8.1 million foreclosures are expected between 2009 and 2012, there will be a lot for borrowers and servicers to talk about. The current rate of defaulting mortgages in the U.S. today far exceeds the manpower capacity for banks or servicers. The Overture solution provides the servicer with several best-fit options to ensure the borrower gets the right modification for their needs.

“We’ve been talking about re-decisioning and using analytics across the mortgage lifecycle for some time,” added Ms. Simmons. “We discovered by talking with clients that the capability to do special servicing already existed in our product. For example, the need to provide integrations to get updated data, the rules engine, the decisioning engine, etc. We wanted to find a way to get the borrower into the right program the first time.

“First, we needed to get the pieces together to make this happen. Second, it has to be defensible because we’re going to have to explain why this was the best fit and why it’ll work. As important as all of this is, it has to align the best interests of the borrower, servicer, investor and other parties from the outset. In saying this, we are not replacing the servicing system. We Velcro on top of the servicing system. In October we started a proof of concept with a customer. I like to tell the story that within 20 minutes of demonstrating the proof of concept the client said let’s do it. So now we’re in development.”

Mozart for Special Servicing enables servicers to reduce recidivism and maximizing home retention using more current, relevant data about the borrower and the asset. It also aligns the interests of borrowers, bankers, secondary markets, investors and other third parties. In addition, the tool maintains consistent, defensible, transparent, processes; levels of discretion and approval practices; calculations and agreed-upon outcomes for every loan, regardless of spikes in volume and industry booms; and provides tailored workout options at the loan level, leveraging existing infrastructure, integrating with legacy systems and other data facilities.

But why should lenders be more confident using technology to do modifications? “We’re not aware of automated decisioning being used in this area,” Ms. Simmons said. “So, the servicer has to remember everything and do calculations with a calculator. The reason why the loan-mod program may not have been right for the borrower was because the decision was being made by a human who can make mistakes.”

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