Counselors and Servicers Partnering

Experts find continuous feedback between counselors and servicers before and after a loan modification is key to successful loss mitigation and lower redefault rates.

Suzanne Boas, president of Consumer Credit Counseling Service of Greater Atlanta, says one developing trend in the marketplace is that more servicers are engaging in data exchanges with counseling agencies as a first step in meeting investor requirements and ensuring long-term data transparency. Tom Deutsch of the Asset Securitization Forum also agrees that investors recognize the value of counseling in helping reduce loss in the securities markets.

Up to 46% of loans modified in the third quarter of 2008 defaulted, said Linda Simmons, general manager of mortgage finance solutions, Overture Technologies, Bethesda, Md. “If you decrease the payment by 20% the redefault rate is cut by 50%.” So data feedback may seem like a simple request, she explained, but reporting is expensive. “The data is there, it’s a matter of how to get it to CCCS or another counselor.” Overall mortgage industry interest in data transparency and ways how to reduce defaults of modified loans is growing, Ms. Boas says, and it is in the process of eventually creating a better information exchange on how a loan is performing after the modification. There are however a few data reporting problems. The country’s largest data systems providers charge for their feedback so data access is expensive, Ms. Simmons says, and the right way to describe problem is “a legacy system limitation.” Then comes the issue of who owns that data, since if a loan is owned by the GSEs the information is in their system and not all systems are compatible.

A more robust data exchange between foreclosure counselors like CCCS who are directly involved in achieving a loan modification agreement, and loan servicers, has proven to benefit borrowers as much as servicer efficiency in loss mitigation, she said.

So CCCS is expanding its Early Resolution Counseling Portal platform it has pilot tested in partnership with Bank of America and Wells Fargo.

Computer Sciences Corp. designed the system to allow fast data exchanges between the servicer and the counselor. So after counseling is completed the portal analyzes data channeled into the system by the servicer of the loan. It screens specific lender and investor requirements so by the time a counseling session ends the counselor can show the borrower highly accurate workout options. If an agreement is reached it is immediately sent to the servicer for a quick decision. It streamlines the process so CCCS receives the same information normally used by loss mitigation staff at the bank.

In May, eight counseling agencies are expected to join CCCS into the program, which as of now helps reduce processing and approval time only for workouts on BoA and Wells Fargo loans. “We are working with other servicers and also working with other nonprofit counseling agencies to train their counselors,” Ms. Boas said. The goal is to reduce redefault rates.

Yet another factor contributing to higher redefaults is that now ervicers involved in loan modifications need do the underwriting of that loan. Ms. Simmons says the Obama plan adds to the process a standardization structure that did not exist before, including extended information requirements, and given the scale of the problem and number of loans up for modification, data reporting faces a variety of challenges.

Servicers are learning what the really good subprime servicers and emerging market lenders knew already about loss mitigation and loan modifications, and that is the importance of call centers, she said.

Now everyone is facing the so-called waterfall effect, “but the tools are out there and in the right hands and they can do a lot of good.”

The way things are right now, says Jay Meadows of Rapid Reporting, more extensive counselor-servicer feedback is crucial to the success of a loan mod. Counselors need to know what loan modifications work and what do not, to be able prevent and reduce the number of redefaults.