Lenders Spruce Up Communication

In the wake of increased regulatory pressure, many servicers of nonprime mortgage loans are paying more attention to borrower communication, according to subprime servicers and rating agency analysts.

But that isn't the only reason B&C servicing is getting more attention these days. With origination volume slowing down, lenders are looking to loan servicing to drive profits as well.

In the past, the servicing shop supported a company's loan origination capacity. Now, some companies see customer service as a business growth engine.

It is estimated that there is now more than $1 trillion in subprime mortgage loans outstanding, according to panelists at the recent MBA National Mortgage Servicing Conference in Orlando, Fla. (See related story on page 2.)

In a recent commentary from Standard & Poor's, which sprung from the panel session on nonprime mortgage servicing, analysts said there has been a significant change in the mindset of servicers about how best to manage nonprime portfolios. Servicers have concluded that "simple, clear communication" with the borrower could have averted litigation or regulatory action.

As a result, servicers have become more "customer-centric" in their approach, S&P said, reflecting concern about the risk associated with being accused of "predatory lending."

What has resulted is a renewed focus on customer relations and regulatory compliance.

Servicers have expanded and further developed their ability to capture and measure "performance metrics" to ensure that their associates and staff members have the training, tools and technologies to be effective in each of their functions.

Michael Gutierez, head of S&P's servicer evaluations group, said establishing meaningful contact with the borrower has become more important in the new regulatory environment.

"We continue to take a close look at call enter metrics, such as average speed to answer, abandonment, and hold and blockage rates, that measure the effectiveness of the customer service function," he said in an S&P release.

Servicers are paying more attention to customer relationship technology, employee training and employee retention in light of the new focus on customer service.

Servicers have concluded that updated customer outreach and well-trained associates will yield better business results and minimize customer complaints that can lead to litigation or regulatory action.

Richard Koch, a director in S&P's service evaluation group, said in the report that monitoring of customer service and collection calls has become more sophisticated and pervasive in the nonprime servicing sector.

"Servicers are determined to provide borrowers with a more effective customer relations experience while also optimizing their compliance with state and federal regulations."

Those efforts sometimes include "call monitoring groups," often physically situated away from the call center that monitor and grade the performance of employees. Such independent monitoring can identify training issues as well as instances of noncompliance with corporate policies as well as state and federal regulations.

"This trend toward a more robust and independent call center monitoring regimen is indicative of a strategic industry focus on providing more effective and productive customer contact experiences," Mr. Koch said.

Servicing shops are also opening new doors of communication for borrowers, S&P said. Those new communication channels include customer service websites, extended calling hours and e-commerce initiatives.

The bottom line, according to S&P, is that borrowers need to be aware of a problem situation before it is too late.

"Often, situations that escalate into regulatory action or litigation could have been averted by simple, clear communication with the borrower in a timely fashion," Mr. Gutierrez said.

Separately, S&P also said that outsourcing has certain functions to third-party vendors that has gained wide acceptance in the mortgage servicing industry in recent years.

"However, outsourcing is not without its risks, both for the servicer and the market," S&P said in a report.

S&P said it plans to expand the scope of its servicer evaluations to include closer scrutiny of outsourced vendor oversight and financial arrangements.

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