Faced with a job loss or serious medical problem, many American homeowners in the last few years have come to an awful place in their lives, unable to continue making their mortgage payments.
It often falls on field contact professionals to conduct careful but intensive borrower engagement and proper organization of documents on behalf of the mortgage servicer that is attempting to provide the most practical terms for the parties involved. As so-called door-knockers, these field workers let the borrower know that while it may feel as if the world has ended, it hasn't.
Too many borrowers are under the impression that if they have no ability to keep their payments current, there is no reason to speak to their servicer. In turn, educating at-risk borrowers about their loss mitigation opportunities, even if that doesn't include a loan modification, will prevent unnecessary problems. By providing options that may help the borrower avoid foreclosure, a goodwill effort to re-engage the borrower into the loss mitigation process is created.
That is an important message to convey, especially in today's housing environment, with all the sea changes in government programs, consumer attitudes and lender/investor actions. Each aspect aims at the single consensus that everyone benefits when a debt agreement performs according to all expectations.
A high percentage of loan modification proposals will get borrower agreement (and signature) when a professional knocks on the door, often with the help of a mobile notary who can be dispatched directly to the scene. Sometimes, all it takes to motivate borrowers to action is showing them the value in doing so.
But there is no doubt that a big problem field workers face today is the pushback from people who are greatly misinformed about what is feasible in today's market. It may be provoked by the media, neighbors, coworkers or elsewhere, but the result is the same: The borrower ends up acting against his or her own best interests by avoiding payments or delaying modification agreements.
Filling in the cracks
In many cases, when a consumer finally accepts that there is no better deal out there, he or she agrees to sign the loan mod paperwork. Still, the borrower feels that he or she is getting something when signing on to a mod.
Much of field servicers' work involves doing backlogging – re-contacting borrowers who are frustrated by no action on their loan mod filings. It requires a regathering of documents that are now "stale dated" after sitting around for five months. A modification that does not lower a borrower's payments may be seen as useless in their monthly efforts to make ends meet.
Borrower contact has always been important, but even more so now – and it is not going away. Indeed, demand for field services has increased during the ongoing housing market contraction, largely because of the huge volume of calls to servicers – including inquiries from performing accounts that would never have occurred before.
Unfortunately, many borrowers who are calling servicers are not the most at-risk and, thus, cause more capacity issues. Those who need help the most may not be calling in at all.
Last year, nearly half of borrowers who went into foreclosure did not speak to their lenders. Although more borrowers may be calling in, the question is how many at-risk borrowers are receiving meaningful borrower engagement on a timely basis.
It used to be that only subprime loans required high-touch involvement. Now, that has moved more into the prime sector, and it is not uncommon to encounter borrowers with 800 FICO scores failing to respond to phone calls, usually because their homes are worth less than what they owe and they still have an adjustable-rate mortgage (ARM) scheduled to reset.
In California, especially, where dramatic declines in home values have occurred, it is very common for field servicers to encounter borrowers who have stable jobs and an ability to make payments on their loan, but because the borrowers have lost over $200,000 in equity in the last year, they see their investment going south and, as a result, will walk away from their obligation to pay.
Also, prime borrowers are angered by their perception that one has to be delinquent for the bank to help, and they use such justification to stop paying or contacting their servicer.
Such lack of moral obligation is increasingly common, providing all the more reason to contact borrowers who may be in imminent default before they make such a bad decision.
As efforts to modify mortgage terms for overwhelmed borrowers have gained momentum, servicers are getting a surprising swell of calls from people who are not having trouble, but still want some attention – perhaps a principal write-down, some forbearance or a minor modification.
Without cause, though, that will be a hard sell. Nonetheless, it has occurred to many servicers that preempting problems could be a financially smart move, especially as borrowers look down-range and hear the rumble of oncoming, adjustable-rate resets. Those holding pay-option ARMs, some with negative amortization features, are particularly worried about what could be giant jumps in their monthly payments.
Servicers are now faced with the challenge of contacting at-risk borrowers of two natures:
Â Â Â N the at-risk borrower who is delinquent and may be in foreclosure status, and
Â Â Â N the at-risk borrower who is not delinquent but is in imminent default.
When traditional methods of borrower-contact efforts – such as call and letter campaigns – fail, the need for early intervention in order to re-engage borrowers is made apparent. Dispatching a field contact professional to the door of the borrower is a strategy that is best done early in the delinquency cycle (i.e., 45-60 days in). Although door-knocking services are often enlisted when a foreclosure sale date is within sight, field servicers regularly encounter more vacant properties in such late stages.
Borrower education, engagement
It has been said that today's loss mitigation efforts by mortgage servicers are a "contact sport," and to be in the game, you must be meaningfully engaged with the borrower. All this loss mitigation activity has required a significant amount of borrower engagement – even more today, with the government's unprecedented activism in this pursuit.
No-contact borrowers, formerly considered to be those borrowers who simply do not speak to their servicers at all, now include borrowers who may have contacted their servicer but, for some reason, have disengaged at some point in the process. Servicers are seeing repeated examples of this disengagement, especially during the initial solicitation for a loan modification, request for income verification documents or the final fulfillment of the loan modification agreement. The question of why borrowers disengage is complex.
Perhaps the biggest reason is that they do not fully understand their options – particularly loan modifications – and are often unclear about how long it will take to qualify, or what the process entails. Often, they are unaware that loan mods require a nearly full re-underwriting that includes full collection of income documents to verify that someone can no longer make their mortgage payments.
Borrowers are often trepidant in supplying income-verification documentation, because such information may be used to prove that they were not honest on their original loan application. A borrower who overstated his or her ability to pay on a stated-income loan product may be fearful of incriminating himself or herself. Field servicers regularly hear borrowers argue that they did not have to provide such detailed information at the time of their original loan applications, and such borrowers question why the information is necessary for modifications.
Educating borrowers about the loss mitigation process is also key to retaining their confidence. Telling them the expected time frames of response sets proper expectations. Warm call transferring to live servicer staff greatly reassures borrowers, and providing counseling and budgeting resources to those in need are all part of meaningful engagement.
Back to basics
Bringing loss mitigation efforts to the doorstep of the at-risk borrower requires a unique and effective approach in creating more engagement and increasing home retention opportunities. A state legislator once quipped, ‘[Lenders] went face to face to make the loan; they should have to go face to face to save the loan."
In the past, the idea of skip tracing a mortgage borrower in order to make contact was not thought of in the past as cost-effective. In the current environment, every borrower contact may be considered money in the bank if the final resolution is not a foreclosure. Sometimes, it is necessary to skip trace vacant homes and reach borrowers in different states who, although they may not qualify for a loan modification, can now benefit from a short sale or deed in lieu. Multiple options are what today's loss mitigation work is all about.
Field servicers are supplementing the work of loan servicers, who are simply overwhelmed these days. A report recently submitted to Congress underscores the importance of this effort, noting that servicers often take two months to respond to borrower inquiries. In some of the worst cases, there are reports of homeowners who applied for mortgage modifications and, five months later, still had not received a final answer on whether they would be granted modified monthly payments.
This is not to disparage servicers, whose operational models never envisioned the deluge of modifications now being required. But challenges remain, and nowhere is that more apparent than in the spread of misinformation concerning foreclosure prevention.
Licensing and compliance
Compliance with all applicable regulations is key, as persons engaged in door-knocking activities have to be licensed debt collectors. (No matter the type of loan, a firm has to be debt-collection compliant and licensed). If any third party works in an effort to indirectly assist in the collection of a debt, which is the underlying purpose of working directly with delinquent borrowers, such licensing serves to protect borrowers from firms that otherwise may not be working in the best interests of any party but their own.
Yet, even with the bright spotlight on help for troubled homeowners, many borrowers are reluctant to have contact with any collection-type agency, because they do not know who to trust.
Late-night TV claims prove the adage that if it seems too good to be true, it probably is, and a rash of federal lawsuits have been filed against so-called loan modification firms that charge borrowers up-front fees to modify loans. Much is also being said about the use of technology in this process, specifically the kind that would enable a sort of "design your own" modification. Servicers must keep in mind that they are essentially competing against these borrower-facing "relief" efforts, and they should examine multiple ways to keep borrowers on the right track.
One example plays off of all of the attention garnered by the Obama administration's Making Home Affordable plan. Think of all the mail that troubled borrowers receive. Most modification packages that are delivered to borrowers are followed by declination letters. But what if those letters also included another bit of information: words to the effect of, "Even though you don't qualify for a loan modification under the Home Affordable Modification Program, you may qualify for another no-cost way of avoiding foreclosure."
In today's challenging environment, any contact with an at-risk borrower is good contact. The key is ensuring that such contact is meaningful and serves to, first and foremost, provide opportunities to retain customers. We all know that no borrower contact means no borrower resolution, and that's a lose-lose proposition.
Jay A. Loeb is vice president and a principal owner of National Creditors Connection Inc., a Lake Forest, Calif.-based field services firm. He heads the company's strategic business development and loss mitigation departments, and can be contacted at (714) 227-7449 or email@example.com.