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Servicers Do More to Connect with Borrowers

At the MBA National Servicing Conference in Tampa, Fla., ProVest LLC, a national process server management company, said it is working with 16 of the top 20 mortgage servicers as well as a government-sponsored enterprise to locate delinquent homeowners that the companies have been unable to contact. Once the homeowner is located, servicers then have the ability to contact and educate him or her about alternatives to foreclosure and help to save the home from going into foreclosure.

ProVest currently searches for upwards of 100,000 borrowers every month, locating more than 55% of the individuals. The company successfully located a large percentage of “no contact” borrowers in 2008 and is further expanding these efforts in 2009 as the servicing industry leverages additional tools to increase home retention. “Lack of knowledge is one of the most critical factors that stops homeowners from being able to save their home, whether it is because that homeowner was not contacted in time or he or she did not understand the home retention options available,” Scott Strady, CEO of ProVest, explained.

“Our borrower location services are proven to facilitate communication in more than half of the delinquent cases that would otherwise have been left to foreclosure. It is an integral step in our plan to help homeowners achieve the best possible resolution for their mortgage, which, in turn, will strengthen our economy.”

Forth Worth, Texas-based Rapid Reporting was also at the conference to discuss how servicers are incorporating more borrower verifications, such as those validating income and employment, into the evaluation process when considering borrowers for loan modifications.

Until recently, Rapid Reporting CEO Jay Meadows says loan servicers have largely relied on information compiled in the loan origination when evaluating borrowers for loan modifications. Verifying income and employment reflects the servicing industry’s move toward more thorough underwriting standards as the industry struggles to correct itself amidst the current foreclosure crisis.

“We’ve seen a significant increase in loan servicers that are signing up for income verification for loan modifications, which represents a big change as servicers had previously not been involved with borrower qualifications,” added Mr. Meadows.

“This indicates that the servicing industry is learning from industry problems and making definitive changes to proactively ensure higher-quality loans. According to the Federal Bureau of Investigation, there is a strong correlation between mortgage fraud and loans that result in default or foreclosure, so it only makes sense to verify borrower information on loans in delinquency to insure that the modified terms fit the borrower’s capacity to repay the loan.”

These loan servicers, which include some of the industry’s most prominent institutions, are now mandating that borrowers sign an IRS Form 4506-T, a consent form that allows the organization to request a transcript of the borrower’s tax return from the Internal Revenue Service, before they will further consider the borrower for a loan modification. Unlike in the past when mortgage companies often secured consent forms but never used them, these mortgage servicers are utilizing that authorization to acquire definitive answers on the borrower’s income, straight from the IRS, through the use of income verification tools such as Rapid Reporting’s IncomeChek. “By securing definitive answers, loan servicers gain the confidence that the loan modification is a viable solution, rather than a futile attempt that will bring out a bigger problem later down the road.” Despite the industry’s tougher lending guidelines, mortgage fraud is showing no signs of slowing down. According to the Mortgage Asset Research Institute’s most recent quarterly report issued in December 2008, incidents of mortgage fraud increased by 45% in the second quarter of 2008, when compared to the same period in 2007. This represents a 3% increase over the previous quarter, which showed a 42% increase over the same period in 2007.

“Across the board, organizations large and small, public and private, are realizing that loans which verify income through IRS tax transcripts are far less likely to result in foreclosure — that includes new originations as well as loan modifications,” said Mr. Meadows.

“The loan servicers that use income verification in their loan modification programs have been recognized by regulatory agencies for implementing sound practices that further mitigate risk. Numerous industry sources report that loan modifications that did not include verification of borrower income fail at a higher rate and end up in foreclosure more frequently.”