Servicers Take Loss Mitigation to Next Level
Underscoring how important sales and people skills have become for loss mitigation, Bank of America Corp.'s home mortgage unit now has 660 originators working on loan modifications, said Rebecca Mairone, B of A's national default servicing executive, at SourceMedia's 4th Annual Mortgage Servicing Conference in Dallas.
These are people who understand the most "complex refi," which is what Mairone calls a modification and who understand how to handle the customer. Addressing more than 350 conference attendees, she said the total staffing in customer outreach at Bank of America is over 15,000. Local home retention events and door knocks are producing better results than phone calls to borrowers, Mairone said.
"We have brought in resources from the marketing department and formed best practices, which I don't think has ever been done before, for solicitation for how we put offers in place and how we get customers to respond," she said. "This is an important and dynamic change in servicing." B of A is not alone in deploying resources from loan production to the servicing side. At SunTrust Banks Inc., for example, the mortgage default department has recruited marketing experts from the origination side to come up with unique ways to get borrowers' attention.
In one such campaign SunTrust mailed ornamental Halloween pumpkins to a group of borrowers in high-foreclosure states who were 90 days or more past due. To entice the borrower to get in touch, each pumpkin came with a gift card worth $200 that could be activated by calling SunTrust. Mairone also echoed comments that Fannie Mae and Freddie Mac executives made at an industry conference in February about finding a "graceful exit" for seriously delinquent homeowners who do not qualify for loan mods.
"We all know there will be a lot of customers and borrowers who will not make it, who cannot afford a modification, who cannot afford to stay in their home," she said. "Our solutions and creativity are really helping that consumer with getting a dignified way out of their current mortgage and transition either into renting or other alternatives."
On a more positive note, she said Bank of America has helped over 800,000 borrowers with loan modifications. "We do believe that's significant," Mairone said.
Of those, 520,000 qualified for B of A's proprietary programs, rather than the government's Home Affordable Modification Program. Under HAMP, B of A had completed 20,666 permanent modifications and had another 22,303 such mods pending at the end of February, according to the Treasury Department.
For the next Treasury report, Bank of America anticipates nearly 32,000 permanent modifications. It also expects to have a pending amount of 30,000 modifications. Mairone called these numbers are encouraging. "We have made progress around helping customers in HAMP," she said.
The company has more than 260,000 customers in trial modifications for HAMP, up from 240,550 in the last Treasury report. Bank of America currently manages 225,000 calls a day just in the default portion of the business. "It's intense to say the least," Mairone said.
Ocwen Financial Corp. president Ron Faris told attendees, in dealing with billions of dollars worth of troubled homes, residential servicers need to hire trained engineers, statisticians, and even scientists to enhance the way they approach loss mitigation.
"The problem is that many of us are still using basically the same type of loss mitigation technology we did 20 years ago. We haven't had our industrial revolution yet. We're still craftsmen who hire others to carry out our trade,” Faris said.
He noted that Ocwen, one of the nation's top-ranked subservicers, has reached out and hired professionals in behavioral science and psychology. The company also has a consumer psychology department headed by a Ph.D. in psychology. "Their focus is on taking what they have learned to help us determine how to approach our customer," he said.
"Now it's time to take it to another level."
In order for the borrower to get the best payment plan or modification, it does not mean the servicer has to give them a modification at 31% DTI or a modification at the maximum amount the servicer thinks they can afford, for example.
Servicers need to have models that optimize the resolution for each individual borrower, he said. "If you give them a lower payment than what they can afford today, you will reduce the redefault probability across a lot of loans, and the net present value to the investor is significantly better than pushing the limit right upfront."
The mortgage servicing industry should brace itself for a continued wave of redefaults on modified loans, said Diane Pendley, managing director at Fitch Ratings, during a panel called, “How to Stop the Bleeding.”
Pendley warned residential servicers that the housing crisis will continue and mortgage bankers should dedicate themselves to mitigating losses to stop the financial "bleeding" caused by loan defaults. While Fitch is seeing an increase in modifications, redefaults are continuing. The rating agency is forecasting that an additional 10% to 12% of modified loans will redefault.
Even as borrowers who make decreased payments under HAMP will be able to stay in their homes, unemployment will continue to create stress on delinquencies, said Bryan Bolton, SVP of loss mitigation for CitiMortgage.
One of the main drivers of delinquencies is unemployment, speakers at the conference agreed. Amherst Securities is seeing rising default rates in borrowers with negative equity. Lack of equity is a major problem especially on alt-A and payment-option ARMs, said Robert Hunter, a vice president at Amherst Securities.