In-House Platforms For Servicing May Not Go the Distance
Every servicer and lender has an in-house servicing platform that measures major compliance milestones. But in today's environment that's not enough to tackle the ever-changing legislation that is constantly coming their way, according to Chris Saitta, president of Equator.
"It's really that granularity of the day-to-day decisions and day-to-day process bifurcated by which portfolio the property is in and which investor and which [mortgage insurance] company. It's a very complex decision process so you need a technology that can get into the granularity of automation."
Equator is an infrastructure Software as a Service provider based in Los Angeles. Currently, the company has 60 servicers on its technology platform, including seven of the top 10.
Some servicers are still running on legacy systems and that, in combination with the need for granularity, is adding industry challenges, Saitta observed.
"I could see how you could implement a government program like HAMP or HAFA with typical volumes, but you take a legacy system and the exacerbated volume that's coming through, and I just can't imagine how servicers without advanced or technology are coping with the volume."
HAMP was introduced to set guidelines for sustainable monthly payments for homeowners. HAFA came out as a follow-on initiative to lay the groundwork for short sale.
Because servicers had to be compliant by April 1, Equator jumped ahead to work with the Treasury Department to automate a turnkey solution to HAFA. "We did this so anyone on our platform could be instantly compliant with that guideline."
The major difference with HAFA, as opposed to traditional short sale, is that with the latter; servicers get an offer and then "make all the decisions." With HAFA, the servicer "makes all the decisions up front and then waits for an offer so he can respond quickly to the offer."
Equator changed the technology process to fit these changes as per Treasury guidelines.
"We set all the timeframes to be compliant with HAFA and handle put-in exceptions. We interjected the entire key reporting metrics that the Treasury wanted to see," Saitta said. "We are now starting to see a lot of volume transferred from the traditional short sale process to the HAFA process. Just a few weeks ago both Fannie and Freddie released their GSE versions of HAFA. So again, we are thinking ahead and working with them to understand the differences in their processes compared to Treasury."
The company is rolling out this solution Aug. 1 in order to be compliant with Fannie Mae and Freddie Mac's timeframes.
Equator also reviews the entire system with the servicer and the process is completely configurable. Saitta said there might be a servicer that has the Treasury version of HAFA with two levels of valuation but internally, the shop wants to do add on another level of valuation. "The real complexity of compliance is not only being compliant with a process but then all of the exceptions per portfolio, per MI company, per investor," he stresses.
"Our large clients sometimes they have up to 170 or 180 different rule sets based on if there is MI involved. Maybe we have to do the valuation different. Is an investor involved? What are the investor guidelines? Prior to a system like Equator, this was all managed on post-its."
How do servicers know they are in compliance? The process is not "so tangible anymore," Saitta adds. "We spend a lot of time with senior management with user acceptance testing. What if the property is with an MI company, with a particular investor, in Florida with these key guidelines? We run through that scenario and make sure this expected outcome is correct. Once a servicer sees 100 of these go correctly, they usually feel pretty confident."
Compliance not only affects lenders and servicers but it also impacts real estate agents and vendors. Equator has 17,000 asset managers on its system. There are 720,000 real estate agents and 20,000 vendor companies-those who provide products and services to the default servicing industry.
"It's important to bring everyone into the process to provide efficiency and shorter time frames," he said. "But by doing that a lot of these compliance rules that not only have time frames for the servicer but it's the same thing for the agent. The workflow for the agent says, 'you have 14 days to do this and if you don't, it will become an exception.' That exception is going to hit the reporting and that reporting is going to be transparent to everyone involved."
Transparency is a "dual-edged sword," stresses Saitta. "It's fantastic when you are on time, and it's not so great when you're not."
In order to connect with servicer clients and discuss the latest compliance changes, Saitta firmly believes it is necessary to pick up the phone and talk. Face-to-face contact is crucial, too.
Clients often reach out to the company and ask Equator to host informal roundtables where various servicers and other parties come together to talk about what they are facing in the industry.
"They voiced their need for a rental solution. We did it. We rolled it out so each client didn't have to do it on his or her own," he said. "Computers should help by reminding you of specific tasks. Our goal is to get rid of the mundane day-to-day aspects of the system so that people can focus on what they do best."