In Averting Foreclosure, Nimbleness Is A Necessity

by John Clapp
on October 27, 2008 No Comments
Categories : E-Features

The modern-day servicing shop is no place for complacency. Governmental pressure and unforeseen levels of media attention have made foreclosure prevention a top goal for the mortgage industry, but achieving that objective requires service managers to rethink the way they do business.

Contending with surging delinquencies is never an easy task, but it is made especially difficult by today's challenging environment. Legislative action and changes to agency guidelines are arriving at breakneck speed.

More important, perhaps, is that servicers are dealing with a new kind of borrower. Gone are the days when servicers knew the properties at risk of foreclosure were owner-occupied. Now, there is a large swathe of borrowers that are more willing to walk away from properties because they have no equity, and customer servicer reps must be cognizant of this mentality.

Also extinct is the notion that borrowers are generally unaware of workout options.

‘I think the borrowers nowâ�¦regardless of where the person works, what they do for a livingâ�¦they're somewhat aware of what's happening in this whole financial industry,’ said John Vella, vice president and managing director, GMAC ResCap, during SM's recent webinar, Strategies For Avoiding Foreclosure. ‘Some are more educated than others, but the bottom line is the expectations have been set that this is a bailout of Wall Street, and the borrower needs to get some sort of help somewhere along the line.’

These new borrower characteristics drive workflow and ‘the way your people need to talk, understand and listen when it comes to dealing with these borrowers,’ he said.

The need for realignment
The departmental lines separating collections, customer service and loss mitigation have become blurred, necessitating that traditional routing procedures be overhauled. Having a borrower who is deemed to be in imminent default on the line is a ‘commodity,’ Vella said, and should be treated as such.

Servicers can no longer afford to indiscriminately hand off phone calls between departments. Instead, there is a greater need to ensure calls are directed to the personnel that are most appropriate for a particular situation, whether it is a cashflow or a liquidation scenario.

‘Let's face it – it's getting more to where you have a smaller customer service operation and one big mitigation department,’ he said. ‘And if you're playing handoffs and you're incenting your people on minimal talk times in the old way of doing business, you're not going to get these loans resolved.’

Vella suggested liquidation scenarios – such as short sales – be handled by real estate owned (REO) specialists rather than loss mitigators, as REO personnel are typically better prepared for such calls because they already have in place the necessary contacts. An added struggle in this context is the obtaining of an accurate property value. Prioritizing delinquent loans demands a strong understanding of real estate market trending, and servicers cannot simply purchase a broker price opinion and assign it as property's value.

The confluence of still-declining markets, a lack of REO financing and the sheer volume of aged properties has caused servicers to reconsider how they segment their portfolios.

‘It takes a whole different skill set than what we used to have in the loss mitigation departments to truly understand what that property's worth and what your options are with that property,’ Vella added, mentioning that some servicers still work off stale property databases. Utilizing Multiple Listing Service data on current listings to determine net present values rather than historical data can prove to be game-changing.

A cashflow situation, on the other hand, may best be managed by a loan officer who's done phone marketing before, someone who can close loans on the phone. Again, the aim is to condense handoffs and remove impediments wherever possible.

Out with the old
Determining whether a borrower is, in deed, in imminent default, however, requires change of a different nature. The scoring models that the servicing industry has relied upon in the past, while maybe not obsolete, are – more often than not – outdated, including variables that were built into systems years ago. In much the same way that borrower characteristics have evolved, so too have the variables that determine the likelihood for default.

Servicers must now keep a close eye on current loans – especially those in the adjustable-rate mortgage world, Vella cautioned – and that can only be accomplished by having suitable analytics up front – items that trigger imminent default and allow for a jump start on loss mitigation.

By equipping staff members with relevant models, service managers enable their employees to more efficiently handle would-be delinquencies. The galaxy of new challenges facing servicers requires new tools and managerial approaches. Incentives should be provided based on the quality of a loan modification, not the alacrity with which it's reached.

‘It all starts with leadership,’ Vella noted, adding, ‘You need to understand that this industry's going to change. You need to prepare your staff [so they understand] things are going to change. Challenge the status quo.’

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