Tool Aims to Minimize Default Risk
Brookfield, WI-Fiserv executives find that processing capacity and a thorough loan screening process that allows lenders and servicers to evaluate risk in different levels are concerns the industry will continue to face this year when dealing with loan modifications.
Demand for sophisticated tools that facilitate the workout process has generated products like Prism, a home retention analytical program developed by Fiserv.
In general, one of the biggest challenges for servicers is processing capacity, Bill Garland, senior vice president, Fiserv Home Retention Solutions, told MSN.
"What we think here at Fiserv, being so tuned in with the Case-Shiller index and the other evaluation products that we offer, there is a lot of dialogue about when will the home values in the single and one-to-four family residence market stop declining and hopefully start rising," he said.
In reality, historic vintage analysis and the delinquency rates for the 60-day delinquent period, if we roll them out, using analytical models servicers can detect what loans will convert into real estate-owned without some level of intervention.
Through Prism, Fiserv here allows servicers to review a pool of loans and report what loans are about to be priced or could default. It analyzes data provided by the investor and the servicer of the loans based on information sources already available in the Fiserv database, explained Mr. Garland.
That market data combined with borrower information obtained from the servicer, Mr. Garland told MSN, allows Prism users to run the analytical model "in a couple of different levels" that generate a lateral risk score, a credit risk score and an overall risk score of default.
The lateral risk score results from data about the marketplace and the perceived trends in values in a particular market. The credit risk score would basically clarify where the borrower stands as it pertains to one's employment status and type.
The overall risk score is based on weighing together general information and statistics about the particular market where the borrower resides and individual profile evaluations.
"We take a pool of loans and drill down into what we think is the potential for a loan to have a problem in the foreseeable future," he explained.
"We also have a second level where we can go out an obtain more current information, maybe a AVM, or BPO and approximate price for a specific property, along with a FICO risk analysis that would indicate what is the credit profile of the borrower. It enables us to provide a greater transparency into the situation of a particular loan."
The software also allows for reviews of individual files to determine which are the riskiest files or whether there are fraudulent practices and compliance issues that may impact the lender's future ability to collect on a particular loan.
"That sums up our analytical offering that leads to all sorts of capabilities we've developed to handle the execution and the result of the technical plan that our investor or servicer or client wants us to pursue with the borrower," he said.
Calling centers have the capability to devise a calling campaign designed to contact the borrower, discuss their situation, their ability to obtain a debt service and their commitment to retain ownership of the home. Data collected is then used to create a proposal or workout recommendation based on the specific circumstances of the borrower.
"It is important to decide what workout will be appropriate, around the business rules provided by the client and their permissions and agreements," he said.
"The next piece would be the one where we can provide the forgoing services for the modification or the workout to be able to document the transaction."
The process is complete since it provides a loan that has been restructured, and the management of that arrangement sent back to the servicer.
Moreover, the campaign is completed within a 30-day timeframe.
"We try to establish a rapport with the client and come up with some sort of workout," Mr. Garland said.
It offers a useful tool to servicers now struggling with very high numbers of defaults adding to their capacity to work with these portfolios in a sensitive manner.
"One of the industry metrics that we reacted to and developed the program after is a study put out by Freddie Mac.
It showed that 57% of borrowers going into foreclosure have not had contact with their servicer and are unaware of options available to them. It is further telling that just three years ago that metric was at 61%," he said.
"The primary focus of our program is to provide that engagement to the borrower, and at least provide some assurance to the servicer, or the client that we're working for," he said.
"We open the discussion about borrower options and hopefully they'll take advantage of that. At least we know that we've giving it our best shot before the account continues to age through REO."
The executive noted REO inventory levels are at such high levels that it clearly is having a negative impact on evaluation.