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As the number of delinquencies and foreclosures continues to rise servicers need to be prepared and plan how to manage their processes accordingly.
How can a loan servicer determine if their process could be improved?
Servicers should evaluate their existing processes and know the answer to several very specific questions starting with: What is the average time from date of foreclosure to date of sale?
Industry sources estimate it takes approximately 478 days before foreclosure begins. While there is state level variation in the foreclosure timeline, just a few years ago, foreclosure proceedings commenced after approximately 150 days. While the number of days before foreclosure has increased, technology and processes have not kept pace with the growth in volume. Additionally, with the number of foreclosures being the highest in history, the time line for the foreclosure process is likely to run longer rather than shorter.
The amount of time to complete a sheriff sale varies state-to-state, but the average length of time is 60-90 days. Several major lenders have halted foreclosure actions in some or all states after concerns were raised over improper documentation and concerns over lenders signing sworn affidavits without reading them. With heightened concern over robo-signing, the result is holding onto properties for an extended period of time, which could have negative effect on sale price. Servicers who retain properties longer than 90 days following foreclosure could benefit from improving their processes and standardizing workflow.
How does your marketing time compare to other servicers in the market?
Market research companies such as J.D. Powers conduct annual homeowner studies to gauge the level of satisfaction with mortgage servicers. This year's J.D. Powers study revealed that mortgage servicers more often fail to deliver on certain best practices during the loan modification process, including providing and meeting a time frame for approval, not asking for information more than once, explaining the entire process during application, and providing proactive status updates during the process. Without a best practice approach and dynamic document management, servicers are unable to have visibility into the process, respond quickly to customers and maintain the momentum. Additionally, they risk elongating the time to progress a loan to foreclosure or sell the REO property.
Do you have a strategy for managing an increased inventory of REO property?
Servicers that do not take proactive and preventative measures to prevent problems during the servicing process will not be able to effectively and efficiently manage their REO inventory. Most recently, several lending institutions have come under fire for flawed documentation. Many cite the enormous increase in the amount of foreclosure papers as to why their foreclosure procedures were improperly handled. A key component for success is having visibility into each step of the process to communicate effectively and keep the process moving forward. Organizations that rely on a paperless image-based repository can easily access documentation and work collaboratively.
Do you have visibility into the exception and approval process to understand your process flow?
It matters how much time and effort is invested in process management. It is not enough for servicers just to automate processes. The goal should be that resources are used to add value and only called upon on an exception basis. Having insight into how many short sale offers have come in, new customer inquiries or deed-in-lieu requests are waiting to be approved can provide the business intelligence that enables servicers to adjust their processes and shorten the cycle time.
Getting speed to Market.
There is no doubt that the tremendous increase in foreclosures in recent years has strained the resources of lenders and loan servicers, creating challenges that any financial institution might find overwhelming. A business process management solution can provide the resources and technology to improve your company's HAFA success rate, create a streamlined workflow, provide visibility into every step of the process and decrease the marketing time on REO inventory.
The biggest benefits include access to dynamic document management tools, a paperless image repository and automated workflow processes that enable servicers to better manage the increasing volume of documentation. By having a system to track customer inquiries and inbound documentation, third party vendor communications, internal department handoffs and approval processes, servicers can ensure the best use of their internal resources and high levels of customer service.
Taking a best practice approach to the foreclosure process and embracing an automated process means fewer errors, increased accuracy and tighter collaboration between departments. A clear trail of documentation ensures organizations meet their legal obligations, return counteroffers and disclosures in a prompt and accurate manner, and avoid unnecessary bottlenecks in the process. It also provides customer care representatives with faster access to information and visibility into the process. This improves communication and enables company representatives to provide quality service to customers.
A standardized workflow that improves visibility also helps improve regulatory compliance. Servicers can ensure milestones are met, such as sending amendments before the expiration date, and that if a document needs to be signed or filed with the courts, it is prepared and ready when needed. Transparency into REO asset servicing mitigates risk, reduces expenses and enables more effective inventory management. And, with better control of the process, servicers can reduce the time to sale.
With heightened regulatory scrutiny and operational risk associated with completing foreclosures, servicers need standardized process to ensure that questions are promptly answered and that documentation is complete, accurate and readily accessible.
Organizations that employ innovative strategies to mitigate risk and shorten the time to market REO properties can optimize their return, build customer loyalty and protect their brand reputation.
Michael Zwall is the director of mortgage services for Sourcecorp. He has over 20 years of operations and financial management experience in the mortgage industry. Zwall can be reached MichaelZwall@scrp.com.