Technology Streamlines Default Management

Mr. Kuegler is vice president of strategic sales at TransUnion Settlement Solutions.

New research by TransUnion indicates that mortgage delinquencies are expected to plateau after steadily increasing for the past five years. This has made the job of managing delinquent accounts as critical as ever for mortgage servicers. To address this need, new default management strategies have entered the marketplace that leverage technology and manage default pipelines based on the risk assigned to a given loan. The result is a significant reduction in later stage delinquencies and foreclosures.

This article will demonstrate how new technologies and strategies are helping servicers gain efficiencies and consistencies in their default management processes. It will explore how innovative solutions are incorporating custom models and workflow engines to automate the default management function for servicers.

A Loss Mitigation Opportunity

While most loan origination departments are already leveraging technology to improve their underwriting and origination processes, default management professionals continue to "work" their pipelines in very manual processes triggered by the aging of past due accounts. This typically requires the loss mitigation processor to make decisions based on embedded knowledge and personal experience, often leading to an inconsistent treatment of delinquent accounts.

While these default servicing practices are time-consuming and labor-intensive, most servicers are still able to achieve positive, consistent results due to the strong skill sets of their default management staff. However, could a significant productivity lift be realized by automating the process without compromising your employees' efforts? Is there a more efficient way to deploy the valuable analytic capabilities of employees to further reduce costs? These questions are being asked across the industry.

The default servicing professional's desire to improve the process, along with the need to apply greater consistency to the treatment of defaulted loans, has spawned a sophisticated crop of new technologies. These solutions incorporate lender-specific, risk-based underwriting rules into an automated decision engine. By integrating process-driven business rules, servicers can compress the loss mitigation process and increase productivity. The desired outcome is a standardized process that feeds objective data into the system and applies sophisticated decisioning to accelerate decision making. Ultimately, borrowers receive timely assistance with problem loans and servicing queues are resolved more efficiently.

The Workflow Solution

Today's default management decisioning systems are essentially an extension of the decisioning and automated underwriting functionality used in the origination process. Systems like MSTD's "Back in the Black" software employs a wide range of workflow modules designed to consistently interpret and implement a servicer's unique business rules. This allows them to automate their default management processes and instantly connect with service providers to order useful products such as credit reports, collateral valuations (e.g., automated valuation models, broker price opinions and appraisal services) and title reports. The system can even schedule delivery of the products in a timely manner.

By implementing a decisioning system, servicers migrate to a risk-based process, matching products to the corresponding risk profile of each defaulted loan. For example, business rule sets may direct the use of a cost-effective AVM or desktop valuation product earlier in the loss mitigation cycle. Integrated automated scoring models, analytical tools and dynamic product selection allow servicers to review their portfolio more frequently, leading to earlier identification of potential problem loans and more precise targeting for problem loan underwriting. This information feeds the decision engine to determine if there is a need, for example, to further evaluate property value variance/decline. Automated product selection rules instantly place orders for photo and condition reports, BPOs or drive-by inspections, if necessary. In other situations, gain/loss calculation and planning may begin using AVMs. The combination of imbedded business rules and traditional time-based milestones offer a robust workflow solution for default management.

Tangible Benefits for Servicers

When integrated into workflow engines, the tools mentioned in this article powered by a decisioning system help servicers consolidate data sources and improve pipeline productivity. Research by MSTD has found that clients have experienced a 25% increase in their loss mitigation pipeline productivity and more than a 30% improvement in cycle times between milestones in collections, loss mitigation attorney referral and foreclosure and bankruptcy management.

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