Can mortgage servicers use technology to get the economy going again?
We used to say mortgage servicing lagged behind origination in using technology. No more. Today there is no question that the mortgage debacle has brought mortgage servicing a host of technology tools. Servicers and default specialists are being tasked with nothing less than turning around a stalled economy. "With a national shadow inventory of 7 million mortgage loans 60 days or more delinquent, handling mortgage loan default is absolutely critical for getting our economy back together again," stated Duke Olrich, president, CEO and founder of Newport Beach, Calif.-based DRI Management Systems.
Responding to that crisis, over the past year we have seen an avalanche of new mortgage servicing technology products and alliances. In October 2009 alone:
• Irvine, Calif.-based Mortgage Outreach Services Group released a loan modification workflow management and tracking system to increase loan-level transparency.
• Santa Barbara, Calif.-based property valuation firm Equi Trax Asset Solutions joined the short sale clearinghouse for mortgage servicers led by Irvine, Calif.-based REsource Asset Management.
• Jacksonville, Fla.-based Lender Processing Services released a version its Web-based ClosingStream software tailored for electronic signatures used with HAMP workouts, and then in August formed a default-related network of service providers.
• Fort Worth, Texas-based distressed-mortgage servicer Residential Credit Solutions implemented a new automated loan modification document services platform that integrates software from Dallas-based SigniaDocs and Bethesda, Md.-based Overture Technologies.
Mark Rogers, EVP, Residential Credit Solutions, said, "RCS was specifically built to be a special servicer of distressed assets. When we started the company in December 2006, we obviously had no idea of the depth of the mortgage crisis. As events began to unfold in the first half of 2007 we determined that to meet the demands of the crisis, what the industry really needed was an automated underwriting engine for servicing—something that got down to the financial aspects of the borrower, not just dealing with the property as an asset.
“Overture had a similar idea. They had the AU for origination but had no servicing expertise. Someone suggested to their CEO that they needed to come talk to RCS because of the vision we had shared.”
The rules-based system they crafted couples borrower information with the waterfall of programs to give answers to borrowers “in seconds, not weeks or months.”
Reports say the Home Affordable Modification Program has succeeded in establishing a low redefault rate, achieving permanent loan modifications for some 400,000 borrowers that reduce their mortgage payments to 31% of income. The challenge for private sector modifications has been whether they can match that low redefault rate—and do it on a larger scale than HAMP has achieved.
West Palm Beach, Fla.-based subprime servicer Ocwen has been the leader to date in mortgage loan modification under the federal HAMP program, posting the fastest turn times for converting trail modifications into permanent loans. The Treasury Department's HAMP record card shows Ocwen's conversion rate as significantly faster than large bank HAMP servicers. Ocwen cited its proprietary technology as a key factor in its success.
In August the Hope Now alliance of mortgage servicers and allied industries reported close to a million permanent loan modifications thus far in 2010, with a 7% decrease in foreclosure starts and a 9% decrease in foreclosures. Since November 2009, Columbia, Md.-based Indisoft has powered the HomeLoanPort website (www.hopeloanportal.org), deploying its RxOffice system to help the HomeLoanPort alliance of counseling organizations give borrowers in-depth debt management, credit counseling and overall foreclosure counseling. Providing member organizations a way to arrive at a common method of data exchange, Indisoft boasted enabling servicers to shrink the decisioning time from 60 to 90 days down to 30 to 45 days.
Fiserv boasts that its servicing platform was the first system fully capable of supporting the Making Home Affordable Modification Program.
At this year's MBA servicing conference Fiserv showcased the default-management capabilities of its loan servicing platform, including automated loss mitigation workflow, the one-touch technology of its portfolio-management center and its interface with the LenStar default-attorney communications network.
As the industry deals with the massive task of addressing REO disposal and loan workouts, ISGN's LenStar has drawn high praise for its role in expediting foreclosure proceedings, particularly in enabling dealing with attorneys online. "I can confirm that the use of LenStar's Integration Utility technology has most certainly resulted in labor savings," said Joel Freedman, managing partner of the financial services law firm Johnson and Freedman LLC. "Having the ability for specific information to automatically interface with LenStar saves our staff from double entry."
Having relationships in-depth with their users, veteran technology providers like Lenstar are able to address specific logjams and pain points as they become obvious. Another example of that is the CoreLogic iClear system, which automates invoice processing to address a surge in invoices from foreclosure attorneys and field-service providers. The iClear system is platform agnostic and is currently being used by three of the five largest servicers, including one top-five servicer that uses iClear to subservice more than one million loans for one large investor.
A number of startups have launched to address specific pieces of the default crisis. In its first operational year, short sale specialist National Quick Sale reports that it "has added 40% of the nation's top 20 servicers to its client list, has several more in the pipeline, and has been approved as a component service provider with one of the GSEs." NQS provides all stakeholders in the short sale transaction with "their own Web pages and dashboards for monitoring progress on multiple deals."
Automating numerous functions online, Jacksonville, Fla.-based National Quick Sale boasts a pipeline "of over 10,000 short sale transactions under management in its platform at any given time," with this number "expected to grow exponentially for the remainder of the year and beyond." By having each deliverable laid out online for participants to eliminate time-wasting delays, and with third-party services ordered directly from the platform, investors and servicers can make decisions and approve online, "bringing true automation speed to the short sale," so that sale transaction time "goes from the 10 weeks previously required to as little as 10 days."
Faith Schwartz, advisor to both Hope Now and the Hope LoanPort, commended National Quick Sale "for helping borrowers with no other options" to get a short sale quickly "through technology advances."
TheModPost.com, Miami, bills itself as the leading provider of Web-based loan-mod and short sale software for the mortgage and loss mitigation industry. Parent company The Loan Post launched the Mod Post to target the niche sector of third-party homeowner advocate groups. The system offers online submission and tracking, provides users with custom website templates and "makes it easy to integrate private labeled submission forms and login portals" for a user's website. It features built-in loss-mitigation tools including a HAMP auto-calculator, an NPV calculator with pass/fail results, a HAFA short sale offer analyzer, a net investor benefit estimator and an automated property value estimator.
Responding to the knowledge that many upside-down borrowers are actively exploring their alternatives to mailing the servicer their keys, the Mod Post also features "the most innovative, automated do-it-yourself loan modification system for homeowners," working like TurboTax to guide homeowners through their own loan modifications.
Seeing how many single-purpose systems have launched lately "to handle REO or HAMP mods or short sales," DRI's Olrich commented, "In the long run that doesn't work." He said the need for such systems arose "because from 2000 to 2007 mortgage industry employees were trained to make loans; that was the name of the game. In 2007 the industry found itself totally unprepared because there weren't enough people trained in default. Technology had to fill the need. There are a lot of technology vendors augmenting servicers' default departments with single-purpose tech tools such as analytics or loan mods."
The mortgage industry "really got interested in default technology after 2007,” Olrich said, “because there we so few people left who were trained to handle defaults." Then, though there was a general expectation that the megabanks would marshal available resources to modify stressed borrower's loans on a significant scale, that didn't happen. "People were absolutely flabbergasted to see how much product was not going through," he said. Hence, the opportunity for entrepreneurial loan-mod and short sale technology providers to step in.
However, that didn't mean the more broad-based veteran servicing technology providers—such as ISGN, LPS, Fiserv, FICS and DRI itself—were not actively bringing their systems into the 21st century. "Now we see a tremendous demand for broad-based default systems," said Olrich, as prologue to talking about the September 2010 launch of DRI's Web-based Rincon default management platform with modules for loss mitigation, bankruptcy, foreclosure and REO.
He said Rincon uses the Microsoft .NET 3.0 coding framework along with service-oriented architecture to enhance communication with standard servicing platforms and other enterprise systems. Rincon promises "to import loans into the database, maintain synchronization between the servicing system and the default system, and gather other important data (pay-off, reinstatement quotes, etc.) from the servicing system, all in real time."
Robert Shiller, director of loan resolution for Dallas-based nonperforming loan specialist Wingspan Portfolio Advisors, told Mortgage Technology prior to the general announcement, "I am confident that Rincon's Web services and automation will make us more productive. On Rincon it's a touch of a button instead of five minutes to do a step—and it's archived as well. To me that's a huge value added in their technology. Having the reporting capabilities in Rincon will maximize profits for ourselves and our clients."
He said the system is designed "to double or even triple the workload each servicing specialist can handle." However, given the high degree of automation in the new DRI system, Shiller described employee training time as minimal. "After one day people get comfortable with the system."
Susan Graham, president of Addison, Texas-based mortgage technology provider FICS, agrees with Olrich that SOA is the way mortgage servicing technology is headed. "We have done SOA in-house and will do so going forward," she said. "Every FICS software app has a Web app as well." She argues that technology is just as advanced on the servicing side as it is in origination, "but it is different. The requirements of servicers tend to be different, since there is a long-term relationship with the borrowers, investors and the vendors they interact with. Instead of software designed to move a loan file from point A to point B as quickly as possible, servicing software focuses instead on providing the servicer with tools to analyze data, process multiple methods of processing payments, handling modification and default situations and reporting to investors and regulatory agencies.”
Also like Olrich, Graham stressed the full-service capabilities of the FICS servicing system. "FICS provides its customers advanced solutions for servicing, automated accounting capabilities, imaging, report writing and online access," she said. "Our servicing system provides automation and seamless dataflow for every facet of mortgage servicing, from loading borrower and loan information, flexible automated payment processing, daily cash accounting, delinquency and collection management, escrow administration, ARM loan processing to IRS yearend reporting." She said FICS customers "benefit from increased data integrity through system-performed calculations and edits to ensure consistency and uniformity that improve personnel productivity and accuracy."
In today's fragile market, accuracy certainly ought to be king. The technology tools are there to address default management in a streamlined, efficient error-free manner. But on all sides we hear the same story: stalled loan mods due to incomplete documentation, data errors and mislaid paper documents. To underline the value of eMods, SigniaDocs president Tim Anderson quotes Cenlar chairman Michael Young's statement that "99% of the loan mod packages that get returned to servicers are either missing some of the documentation necessary or have errors in them." The key value of e-modification documents is that "they never leave the control of the lender and servicer," said Anderson. If heading off defaults is the first best answer to reviving the mortgage market and the economy as a whole, then e-mods will be an invaluable tool. As he has repeatedly noted, "80% of e-mods are executed without any mistakes within 48 hours.”
