Scott Brinkley, executive vice president of First American's Outsourcing and Technology division, discusses strategies for simplifying the loan modification process and updates MortgageOrb on company developments.
Q: One of the most commonly cited issues for servicers participating in the Home Affordable Modification Program is borrower engagement. What do you see as the best solution to this problem?
Scott Brinkley: There's certainly no shortage of opinions as to what is the proverbial ‘silver bullet’ here. But in our experience, the more precise front-end portfolio stratification (i.e., improved borrower selection protocols) that you are able to perform, the higher levels of program participation and success that you'll get.
Otherwise, you're spending time and resources against borrowers who don't qualify under the program. Sometimes it's because the properties are not owner-occupied, so they fall out of eligibility. Or maybe the property is listed for sale or the borrower simply has no intention of keeping the property, so they are really not interested in modification.
By analyzing the delinquent portfolio in advance, the servicer can exclude many non-qualifiers and focus its efforts (and financial resources) on borrowers that do qualify and increase borrower participation and modification success rates. This stratification process will also allow the servicer to create other campaigns targeting these non-qualifying borrowers.
Q: What advice do you have for servicers that are looking to simplify their loan modification processes?
Brinkley: First, leverage advanced analytics and decisioning to improve program results and eliminate unnecessary rework. Then, decide what your core competencies are and whether you can outsource non-core business functions to third-party providers.
Fulfillment is a good example of the kind of non-core function that lends itself to outsourcing. In your typical mod, the servicer is going to generate state-specific, compliant documents and then get these documents in the hands of the borrower. In most cases, there needs to be follow-up with the borrower to ensure that the instructions (and the borrower's intentions) are clear, and that the mods are executed.
Finally, these documents often have to be recorded. A growing number of servicers have come to see document fulfillment as non-mission-critical and want to convert these fixed costs (salaries, etc.) to variable costs.
Q: Fill me in on the details of First American's recent deal with FedEx. How is your company leveraging FedEx's capabilities?
Brinkley: First American Information Solutions Co. has entered into an exclusive logistics arrangement with FedEx. They have created a dedicated First American fulfillment center at their world headquarters in Memphis, Tenn., to handle our modifications. We send them the modifications electronically, and FedEx prints, packages and delivers them overnight to our borrowers. FedEx then tracks the deliveries and notifies First American upon their arrival.
Within minutes of notification, our counselors or our clients' call centers are able to follow up with the homeowner, walking them through the offers and the acceptance process. Signed loan modification documents are returned to us via a reusable, custom FedEx envelope specifically designed for the program. Throughout this process, First American and our clients are able to monitor modification status online. Once modifications are returned, they are scanned and imaged so that servicers and investors can view them online.
We're excited about this partnership for several reasons. First, it expands our production window considerably. Our teams can keep working on modifications well past the normal FedEx delivery deadlines and still get these offers into the hands of homeowners the next day. FedEx's tracking enables us to follow up more effectively, improving our conversion rates.
Finally, we are able to practice what we preach: We're outsourcing to the world's best logistics company, and this enables us to lower our costs and reassign resources to other higher value tasks. What it means to our clients is that they get better cycle times and their borrowers have the highest level of support.
Q: When it comes to REO, what are some of the more innovative disposition strategies being implemented today?
Brinkley: How efficient you are at disposing of REO assets is a function of how good you are at accurate asset valuation (i.e., listing the property for the right/best price). Local market dynamics will always be a primary driver of results, but there are progressive approaches to asset disposition that should be added to the mix. At First American, we rely on advanced asset valuation analytics to ensure that our clients' assets are priced realistically and listed accurately the first time.
Given the sheer volume of REO business, some default managers tell us they can't even be sure that their REO is being listed. To help them, we've come up with a new report to verify listings and list prices.
We can also offer property-preservation services to maintain the asset's condition. On a street where there might be four foreclosures listed for sale, we want our client's asset to be the most attractive and most accurately priced property.
Q: The First American National Default Title Services unit recently launched a division that focuses exclusively on residential rental services for REOs. What are some of the top risks and rewards associated with renting out REOs?
Brinkley: There's no question that renting assets until more favorable market conditions develop (or to assist the borrower/homeowner/lessee with transitioning to their new home) has considerable advantages. We are seeing more and more agencies/investors/servicers consider this approach.
If there is a renter in the property, the asset is usually well preserved. The investor is still holding cashflowing asset until the market recovers and avoids a "fire sale." The downside risk is corporate liability. This is why servicers and investors have avoided this solution in the past.