Default & Loss Mitigation

The economy is strengthening, but not quickly enough for some mortgagors. Last month, the Department of Labor reported an unexpected rise in unemployment claims. And increasingly, many of the jobless are remaining out of work for longer periods of time than in the wake of previous recessions or economic downturns.

That lingering effect of workplace downsizing, combined with the other big "Ds" of mortgage defaults - divorce, death and disease - pushed up the foreclosure rate to a record level in recent years. While the Mortgage Bankers Association delinquency survey suggests that the situation may be turning around, servicers find they still have a heavier default management burden than they would like on their hands.

The old adage is that the 3% of a lender's loans that are delinquent at any given time consume a third of a servicer's resources has never been more true. With renewed regulatory and sometimes litigious attention being focused on customer service and collection practices - especially in the B&C sector - lenders are revamping quality control and taking added precautions to avoid getting themselves into trouble.

In many cases, they are relying on business partners to manage much or all of the default management process. That includes attorneys who are knowledgeable about state and local foreclosure laws as well as technology vendors and other specialists. As scale becomes more important in the servicing business, lenders are looking for ways to streamline and automate functions on the default management and loss mitigation side of the business to make their servicing shops more productive.

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