Lenders need to streamline the application process in loan modification programs, sparing borrowers from having to submit documents that reveal little about the risk of redefaults, experts said at a mortgage conference in Dallas this week.
"We have to have a simple application package [with] standard terms [and a] uniform application," Ivery Himes, director of asset management for the Federal Housing Administration, said Wednesday during the Mortgage Bankers Association's servicing conference.
Before the recently expired Home Affordable Modification Program, it was the "Wild West" when it came to efforts to keep distressed borrowers in their homes, said Michael Malloy, vice president of servicing at Quicken Loans.
"HAMP standardized the industry and created a template" for modification programs, although at times things "often weren't easy," Malloy said.
Early on, the program demanded a lot of documents, supposedly to keep those who did not need the help from receiving funds. But that made things difficult to help distressed borrowers.
"Simplicity is genius," he said, adding that in order to create borrower engagement, a modification program "has to resonate with clients so they believe it is a lifeline for them."
JPMorgan Chase looked at data from standard and streamlined documentation modification programs and discovered that when adjusted for risk, they performed similarly, said Erik Schmitt, executive director of mortgage servicing.
A successful modification "is all about payment reduction," he said.
There needs to be a conversation among servicers, investors, regulators and consumer advocates on developing best practices for default servicing, Malloy said. "If you want to affect the cost to service, there needs to be one set of rules for default servicing" no matter what type of loan is involved.
Making better use of integrated data, similar to what Quicken is doing on the origination side with Rocket Mortgage, could ease the modification process for borrowers. "What can we do around data if we really thought about it?" Malloy asked.
On the front end, lenders have tools to validate income; it would be helpful to servicers if they could use such tools to learn of changes in a borrower's employment status so they could reach out to that person, Schmitt added.