Small Credit Union Sees More Competition In the Future

Phoenix-At least one credit union surviving the foreclosure crisis as a small fish in the pond is getting ready for an even more competitive marketplace going forward.

Smaller banks and mortgage servicing shops will be hit even harder as the market starts to recover, says Daniel Gotlieb of Desert Schools Credit Union here.

"There are a lot of challenges for small banks like credit unions and it will be harder as the larger banks start to heal and handle all the business."

He argues that loss mitigation is harder from a small servicer's perspective. Banks need to tie all loss mitigation processes together to be able to efficiently outsource, which is very new for most credit unions since they are very different from other banks, he says. For example, over the years DSCU never saw any losses until 2008.

"Our servicing platform has about six pieces to it, so to tie it all together and be effective in loss mitigation is a tremendous challenge.

"We are worried of putting it out there and then having it completely fail. ... On top of that is the credit union relationship, the fact that we're member owned ... that when we share our member information they do not get upset."

Lots of pieces, or must-have tools need to come together to make loss mitigation successful, says Mr. Gotlieb, who has 15 years of loss mitigation experience including starting the first loss mitigation department for DSCU. "But the most important is expertise, having trained folks."

Markets differ. In the Phoenix area there are not many loss mitigation experts to hire because traditionally there have not been many servicers in the area.

"We have had to grass-root train people, choosing the right folks for the job, moving staff around the company rather than laying them off. It means training them to make sure people have the tools they need," Mr. Gotlieb says.

"Loss mitigation is negotiation, a skill. It's an art. You need the right people with the right personalities to make it successful. To blow that out and then go to the next level and outsource is a lot of work."

Banks restructuring a loss mitigation department often have too few experts and too many vendor options.

"The servicing business is changed. What special mortgage servicing technology providers are doing is revolutionizing the market by enabling users to choose between a compartmentalized approach and basic outsourcing, or cradle-to-grave approach. It appears demand is higher for the latter, with some aspects of a compartmentalized use of outsourcing," says Alex Santos, managing director and COO of Digital Risk, Maitland, Fla. "There's a plethora of tools but there's no substitute for experience."

There is such demand for experienced loss mitigation people that servicers need to train less experienced staff, upgrade processes and use successful outsourcing to increase loan processing efficiency.

Improving old technology is not always successful, Mr. Santos says. For instance, while it is preferable to have the same customer contact the person during the whole loan modification process, technology is changing so fast that it is a good idea to use it as an outsourcing option. "You need to look at your book of business and do an internal study first to see where your strengths and weaknesses are, to be able to decide."

"First, outsource the things you don't do well," advises Steven Paton, SVP of loan administration at Marix Servicing LLC, a loan servicing company specializing in loss mitigation technology founded in 2007. "Rather than re-engineer your shop it's usually convenient and economical to have a vendor do the outsourcing - if it can be a smooth adoption and insertion into your processes. Third, always try to have an exit strategy in case the outsourcing doesn't work or doesn't give you the benefit it promised."

Loss mitigation is challenging because it is high touch, Mr. Gotlieb says. "One change we started to make during this crisis is to convert our technology platform, which was initially created in 1993 and consisted of a patchwork.

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