Rising foreclosure rates threaten to overwhelm the U.S. real estate market; a record one in 10 loans were delinquent or in foreclosure at the end of September 2008, and a total of 2.2 million homes are expected to have entered the foreclosure process by the end of 2008 with the foreclosure outlook for 2009 to be significantly worse, according to data compiled by the Mortgage Bankers Association. Will these market conditions finally bring true innovation to servicing or will current technology just be applied to deal with the problem at hand?
Historically, the servicing side of the mortgage business has lacked innovation. The origination side has produced the greatest amount of money in the past; therefore that is where the technology vendors have focused their efforts.
While there is great pressure on servicers and lenders to engage in loss mitigation, which includes loan modifications, to slow the rising tide of foreclosures, there needs to be a much greater focus on innovation to properly modifying these existing loans. Some 53% of borrowers with loans modified in the first three months of 2008 and 51% of those with loans modified in the second quarter could not keep up with payments within six months, according to U.S. Comptroller John Dugan. This clearly suggests that applying the same outdated servicing technology to these new challenges is simply not working.
The risks and costs associated with not correctly modifying the loan significantly increase the loss severity of the initial troubled assets of the servicer or lender. Will this be the catalyst for true innovation in servicing technology?
With the current market conditions and the changing economics on the origination side, technology vendors are shifting their focus to servicing. Pick up a mortgage publication, go online to read what is happening in the mortgage industry and you will see the proliferation of stories from technology providers regarding loss mitigation, defaults, foreclosures, and loan modifications and how they are bringing solutions to market to address these challenges.
This is not an all inclusive list but highlights a number of the solutions that have just recently come to market. These include the likes of enterprise loss mitigation solutions with fully automated workflow, data-analytics, business rules, automated task queuing with auto-resolution and real time management monitoring and visibility.
Other solutions offer full loan modification outsourcing, re-decisioning technology, and automated loan eligibility and optimization determination of loan modification, to customized repayment solutions. While additional solutions provide business opportunity engines that drive personalized communication to engage troubled borrowers, others offer electronic modification to improve and accelerate borrower acceptance. These solutions also include solicitation management, e-Doc modifications online, and full document preparation of loan modification documents coupled with compliance expertise and understanding.
While the verdict is still out as to which of these innovative approaches will best meet the new demands of servicing technology, one thing is certain, the current market conditions and pressure to embrace loss mitigation strategies have acted as a much needed catalyst for innovation in servicing technology.
I for one, welcome this infusion of innovative ideas on the servicing side. It has been a long time coming.
