Recently, on this website, industry veteran Lynn Effinger posited that the end of the government's quantitative easing program could prove to be one more factor leading to higher delinquency and defaults for residential mortgage borrowers. Effinger expects to see a falling stock market and, with it, a weakening housing market in the wake of the Fed's decision.
In his piece he suggested, "Those professionals who specialize in foreclosures and REO had better not lose their touch for helping the mortgage servicing industry to manage, market and dispose of distressed properties. Your professional services will again be in demand."
He's right. We're not going to be seeing a pre-crash economy anytime soon. Even when we do, the new servicer rules demand that we approach this business differently than we have in the past. Risk mitigation has taken on an entirely new meaning and it now includes factors — such as the customer experience — that were not present in the days before the foreclosure crisis.
Things are different for consumers, as well. The economy is improving and while unemployment numbers are down, incomes are not rising quickly enough to cover the new credit opportunities being presented to consumers today. Many are still underemployed and earning less than they were before the crash. Despite that, credit card debt is easy to obtain, but now carries much higher interest rates. Add that new debt to crushing student loan debt and it's easy to see how American home loan borrowers are balancing on a razor's edge. When adjustable-rate mortgage and government loan program borrowers see their interest rates tick up next year, things could be bad again quickly.
But in our conversations with servicers who are using our technology in their businesses today, we're finding a high level of confidence that they'll be ready for modest increases in delinquency and default. Servicers have learned from the problems we have all faced over the last decade, streamlined their organizations, built strong partnerships with subservicers and default specialists and implemented new technology platforms. They believe they're ready. They're probably right.
You need to look no further than SPOC to see that servicers have been driven to change the way they operate, streamlining their organizations to allow customers in need to move swiftly through their organizations in search of the help they need. While the outcomes are not always what the borrower intended, they are usually what the borrower can afford and are delivered without the runaround.
Those servicers who realized they did not have the capacity in-house to handle the flood of delinquent borrowers that rose during the crisis forged alliances with subservicers who could handle that work for them. These relationships have been honed over time so that now they work seamlessly.
Finally, the technology that servicers are using today is now proven. As a provider for this space, we can tell you that servicers have been very demanding when it comes to the information technology they rely on — and rightly so.
We generally come across two different types of servicers who are in the market for new technology. Either they are currently using a system that has not met their needs and compliance concerns are forcing them to change or they are smaller servicers who had previously been running their business on spreadsheets and found that this is not an effective solution for a heavily regulated industry. In both cases, their needs are similar and their tolerance for problems is extremely low.
They are seeking automation that will allow them to swiftly deal with servicing exceptions in a fully compliant manner, with a full audit trail. That's where the similarities end. Each servicer brings their own culture to the problem. Smaller firms expect a fully configured tool right out of the box, and those are available today. Larger servicers want technology that is adaptable to their methods, but that still provides the compliance safety net. Most are opting for SaaS, as it puts the responsibility for maintaining the software in the hands of the vendor, where it belongs.
After years of working through the largest backlog of troubled loans this industry has ever seen, the technology in use today is proven and the executives who use it are well trained and capable. No bump in defaults is likely to overwhelm these servicers now.
Even so, every servicer in business today knows that they cannot afford to make a mistake. Treating customers with respect when they are defaulting on an agreement is not always easy, especially when the servicer is made to feel like the bad guy when a borrower's situation changes for the worse. Technology is a big part of the answer. Servicers have access to great platforms today, which is probably why they feel so confident that they can handle the challenges we're likely to see tomorrow.
Amy Bergseth is vice president of operations for Glencoe, Ill.-based Default Servicing Technologies LLC. She can be reached at email@example.com.