With the numerous program guidelines, strategies and other challenges facing mortgage servicers, the ability to rapidly develop and deploy technology is crucial for current and future loss mitigation efforts, according to a panel at the recent National Mortgage News “Best Practices in Loss Mitigation” Conference in Dallas.
After the nation’s largest servicers agreed to a settlement with state attorneys general that required a number of changes, including that they establish a single point of contact customer service procedure, their subservicers and specialty servicers had to adopt those policies as well. In addition, many servicers are adopting the policies, even though they’re not currently required to do so. In other cases, some states are establishing similar policies and servicers with a national scope have to adapt to each unique set of regulations.
“We’re moving in that direction because of the lead time and we’re making the changes to our systems for when it becomes required of us,” said Traci Luckhaupt, vice president of loss mitigation at Fifth Third Bank.
Many organizations define the SPOC requirement differently and the key is going to be establishing an industrywide definition, said Kirk Gerling, senior vice president of home retention at Carrington Mortgage Services. Regardless, SPOC compliance is a challenge that can only be solved with technology, otherwise it would be impossible for servicer employees to handle the demands of the job.
“To make that a functional asset, it looks good on paper, but it’s extremely difficult to implement in practice,” Gerling said. “Our lives have been dominated by rules and regulations, but dealing with your staff to handle anything from ‘I want to make a payment’ to ‘I’m going to sale tomorrow,’ is very difficult.”
Short sales are becoming a more attractive loss mitigation strategy for servicers and investors, but the industry still is facing challenges developing the best ways to maximize the benefit and reduce turn-times. Phillip Comeau, president and CEO of Phillip E. Comeau Co., believes that liquidation workouts, including short sale, deed-in-lieu of foreclosure and real estate owned sales, will take a greater share of resolutions than home retention efforts. But he added that those efforts should be dominated by short sales.
“As an industry, we’ve got to do a better job doing short sales…we’re not there yet, but it’s very doable,” Comeau said.
Dominic Baglio, senior vice president of default services at Green Tree Servicing, said the industry is making the short sale process harder on itself by requiring too much information and documentation from borrowers.
“Once the borrower goes down the short sale path, they’ve disengaged and they put it all on the real estate agent,” Baglio said. “The industry needs to do a better job of identifying what documents we really need from the borrower.”
Following the remark, Comeau asked the panel why investors of private-label mortgage-backed securities require so much paperwork for short sales, particularly given that most do not pursue deficiency settlements from borrowers who short sale. Noting that many short sale policies haven’t been revised since the housing crisis, “it’s because it’s what we’ve always asked for,” Gerling responded.
Another short sale challenge, Comeau said, is that many borrowers don’t do enough ahead of getting a prospective buyer, making it more difficult for servicers to approve a short sale transaction.
“Less than 5% of short sales are done proactively, where all the paperwork is in place in advance and you really can respond within 24 hours,” he said. “In the reactive process, that’s what’s taking all the time and that’s where we need to get better on that.”
When servicers adopt new loss mitigation efforts, like increasing short sales or responding to new program guidelines, adding technology to assist can be difficult, particularly under tight time constraints. Manual processes create opportunity for human error and require extra training, Baglio said.
“If you have people entering in information in a spreadsheet, that can be problematic,” he said. “You have to adapt and change quickly.”
Baglio added that regulators and investors should work more closely with servicers to establish reasonable timelines for new requirements.
“The industry needs to have a say in how long it takes to implement the technology and get everything in place before adopting a new policy,” he said. “It’s much easier to sit back and create the idea, but the implementation and sustainability of it is what’s really hard.”
Luckhaupt expressed the same concerns. “It’s a challenge for any platform to keep up because it’s rapidly changing. We have to do a lot of manual workarounds and manual work, so you have the risk of making errors,” she said. “You can’t build things fast enough to meet the tight timelines for some of the things we’re having to adopt.”
Another critical issue is ensuring data accuracy and integrity, both to streamline processes and provide audit trails of loss mitigation efforts.
“You can have everybody doing what they’re supposed to be doing, but unless you have the technology in place to prove that you’re doing what you’re supposed to be doing, you don’t have the data to prove that what you’re doing is right,” Comeau said.
Servicers with myriad disparate systems are finding that they need to implement single data repositories to store the data and generate reports on it. “That way if you make a change to a system, you don’t have to worry about the data,” Baglio said.
Luckhaupt agreed that her organization has found that a single repository for data is the most successful strategy for the servicer’s multiple systems.
“The best bet to try to survive is to dump the data all in one place and sort through it,” she said.
Still, even with the best technology, there will always been a human element to loss mitigation. At Fifth Third, loss mitigators use technology to predict which loans are in danger of default and field teams meet with borrowers at branch locations face-to-face. The other servicers agreed that managing staff, from tasks as simple as making and answering phone calls, to tasks like SPOC and other regulatory requirements, takes tremendous effort.
“The larger shops can throw human capital at it, but they’re spread out all over the place, so how do you coordinate that?” Gerling said. “You’ll never take the human element out of it entirely…you’re still going to have to talk to the borrower.”
