B&C Borrowers Find It Hard To Catch Up with Late Bills

When servicing lower credit-rated home loan customers, lenders need to remember that these are people who haven't saved a lot to get them through a rainy day.

"By the time they have stopped paying their mortgage, you are competing with a lot of other creditors," said Scott Conradson, a senior vice president at Ocwen Federal Bank who spoke at the recent MBA Mortgage Servicing Conference.

Subprime borrowers are more likely to get behind on their monthly payments and are more likely to have trouble catching up when they are behind, he said.

They are also less likely than conventional borrowers to return calls from a collection counselor, making it more difficult for servicers to work with them to resolve problems.

In addition, subprime borrowers are more likely to skip tax and insurance bills than conventional borrowers, so lenders need to be prepared to make force payment. In Ocwen's case, only about a quarter of its loan servicing portfolio has escrow accounts for tax and insurance purposes.

This can cause problems, or "create noise," in the servicing system if the borrower makes a late payment and the lender has already force placed payment.

Mr. Conradson urged lenders to focus on "enabling" technology such as predictive dialers, best-time-to-call software, workforce management, scripting engines, call recording and automated skip tracing to make collection efforts more efficient.

Ocwen also has started using behavioral models to evaluate borrower payment patterns as well. Some borrowers may not need early intervention as much as others, he notes.

Ocwen is particularly alarmed by borrowers who miss their first scheduled payment, because these early defaults are costly in the secondary market.

"First payment default is something we pay a lot of attention to," he said.

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