Servicers Need to Take Loss Mitigation to the Next Level

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. Speaking at SourceMedia's 4th Annual Mortgage Servicing Conference, Ocwen Financial Corp. president Ron Faris told attendees, "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." 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, he told the audience. "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."