New Generation of EPS Benefits Mortgage Industry
Mr. Noser is vice president, Western Union Alternative Payments. He can be reached at brett.noser
The recent real estate boom has found borrowers taking advantage of more than just historically low rates on 30-year, fixed-rate mortgages, but also programs designed to get cash-poor buyers into homes. While these instruments have low interest rates now, history tell us they could leave buyers - and ultimately mortgage companies - in a lurch as market fundamentals change in a few years time.
Currently, late and delinquent mortgage payments are increasing across the board prompting companies to re-evaluate payment processes available to consumers. According to the American Banking Association, consumer loan delinquencies jumped to 2.02% in the first quarter of 2003 from 1.64% in the fourth quarter of last year. In early 2003, the Federal Reserve reported that overall household debt has increased at a double-digit pace for the past five quarters. Additionally, the Fed said, household debt increased at a 10% annual rate in the first quarter of 2003, with mortgage debt increasing at a 12% annual clip.
In many cases, as rates begin to rise, homeowners will find their monthly mortgages becoming drastically higher, bringing little relief to mortgage companies dealing with delinquencies. Today, mortgage companies are turning to electronic payment solutions to improve cash flow, while providing the consumer with greater options in how and when to make a payment. While electronic payments are nothing new, the benefits of more efficient options continue to increase. By using electronic bill payment systems, mortgage companies can secure a payment over the phone or online via electronic check, credit card or debit. Companies most often use a service provider with expertise creating and settling electronic payments, to not only save money, but ensure compliance.
How it works
The ACH process (used to send payments electronically) eliminates much of the paper handling that slows the check-clearing process and increases cash flow as payments are accepted more quickly/faster. According to the First Federal Savings Bank, ACH can save businesses as much as 62 cents per transaction. Payments are collected from consumers via touch-tone telephone and state-of-the-art Interactive Voice Response (IVR) technology to make payments owed. This eliminates the need for customer service representative interaction. However, when a payment is past due, the customer is contacted by a CSR, who utilizes the electronic payments system by requesting the customer's checking account information over the phone. The CSR then enters the information into the system via a software-based or Web-enabled application, and confirms the transaction amount. While on the telephone with the CSR, the customer verbally authorizes the transaction, either as a check draft drawn on the customer's bank account or an ACH transaction, depending on how the business chooses to set it up.
Customers generally pay a transaction fee for the convenience and peace of mind that a payment is made. Mortgage companies implement electronic payments systems at a very economical rate. Most consumers are willing to pay a small fee to have a payment accepted and considered on time, over the phone rather than face the possibility of making a late payment.
By using a technology option that creates a real-time customer payment profile, CSRs are empowered to make informed decisions regarding the optimum payment method while on the phone with the customer, improving the odds on the promise of payment. For example, if the customer has a history of insufficient funds, the CSR can direct the customer to a location where they can pay in person with cash - guaranteeing funds.
While there is little doubt, homeowners who signed up for adjustable-rate mortgages, balloon notes and interest-only loans are in for a shock as the market changes, it is possible to aid in the transfer of funds with the ease of electronic payment solutions. And as the consumer trend of missing payment deadlines continues to grow, it's more important for businesses to offer alternative payment options to their customers. Businesses continue to find telephone payment systems as an effective tool to improve cash flow, while providing a higher level of customer service. Consumers find that paying bills on time at the last minute not only saves them the expense of late fees, it also allows them flexibility to serve their unique budgetary needs.
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