By George Fitzgerald, EVP of Solutions Management for Servicing Technologies, a division of Black Knight Financial Services
There are very few financial transactions that reflect the vagaries of life in the United States as thoroughly as does a mortgage loan. Over the course of what is often a multi-decade financial obligation, homeowners typically face many changes such as job loss, health issues, marriage or divorce, and many other life events. Any of these could significantly impact a homeowner’s financial circumstances, and possibly his or her ability to honor their mortgage loan contract.
While non-performing loans are certainly very troubling and costly for servicers, they remain committed to evaluating every possible option to help distressed borrowers stay in their homes if they wish to do so. This means that impeccable processes must be in place, supported by rules-based technology that can analyze a homeowner’s unique financial circumstances against a range of possible mitigation options to either produce an appropriate retention solution - or to prove that one is not possible.
The final decision is extremely important on every level. If financial circumstances are such that a loan modification or forbearance option appears viable, it can allow homeowners to remain in their homes, and provide the time and opportunity they need to stabilize their financial circumstances. However, when even the most aggressive mitigation efforts will not allow homeowners to stay in place, it can initiate very significant and difficult changes for the borrower. That’s why servicers remain focused on helping homeowners avoid foreclosure, even if retention efforts are not possible, by offering options such as short sales or deed-in-lieu agreements when appropriate.
The Drive for Positive Outcomes
Servicers are certainly driven to produce positive outcomes, not only for their customers, but for their employees, communities and shareholders. When a mortgage loan fails to perform as contractually required, the tremendous range of variables that must be evaluated, tracked and managed is best handled with the help of robust servicing and loss mitigation technology and tools. These systems are the backbone that help enable responsible analysis and the appropriate decision-making that may help transition a non-performing mortgage loan into a workable solution for a struggling homeowner.
Data and Documentation
The days of forcing distressed homeowners through the difficult process of finding and submitting the data and documentation that is required in order to be considered for a mitigation option is untenable in today’s world. Most servicers should be able to gather all the data and documentation that is needed through automated data access to both internal information and external public records. Once gathered, this information can then be utilized to conduct the required analysis by deploying automated rules and decisioning tools to help determine the best options for borrowers.
Of course, this is a very high stakes process – for both the homeowner and for the servicer. It is imperative that each step taken in the mitigation process is the right one, is completed at the right time, and that all available data and documentation is fully considered. Every part of the process - including every number that goes into each computation, every loss mitigation option that is considered, and every reason given for the conclusion that is ultimately reached - must be recorded and accessible to all interested parties, including regulators.
Transparency and Auditability
While a data and technology-driven decisioning engine can dramatically reduce the probability of errors in the process, the outcome of the mitigation analysis impacts both individuals and families, often in life-changing ways. Therefore, nothing can be left to chance, and everything must be done according to very precise rules. That’s why auditors from the CFPB, the OCC, or others who are designated to evaluate these decisions may wish to review and validate each step in the mitigation process to make sure no detail was overlooked or mishandled. Servicers must be able to demonstrate the reasons why they believe the conclusion they have reached is the right one for a particular homeowner, and to prove that rules were correctly executed given the unique circumstances of the borrower under review.
To accomplish this level of transparency and precision, servicers typically deploy a robust rules engine that is not only able to execute on the decisioning process across multiple mitigation options, but that can also record each step in that process – along with associated timestamps - so servicers can clearly demonstrate how and when decisions were made. This rules-based approach enables auditors to examine fact-based evidence to verify that no questionable areas exist in the process, and that the outcome for each specific borrower is the right one. It also helps to assure auditors that rules are followed consistently from one customer to the next, without exception.
Whether the required loss mitigation rules are associated with programs from Fannie Mae, Freddie Mac, Ginnie Mae, HAMP, or others that are established by the servicing organization itself, transparency and auditability of loss mitigation processes and decisions is vital to achieving a positive regulatory review. Rules-supported decisioning is also a key success factor in helping servicers ensure that decisions not only adhere to regulatory requirements, but are also compliant with internal policies and procedures, and appropriate for each borrower’s particular circumstances.
The Drive for Cost Containment
According to a recent MBA Servicing Operations Study, the average cost of servicing a performing loan is over three times higher now than it was during the pre-2012 years. The Study reports that the average cost of servicing a performing loan rose from $59 per loan as reported in 2008, to $181 in 2015 – a significant increase from the 2008 baseline.
In addition, during this same period, the average cost of servicing a non-performing loan ballooned to nearly five times the amount it was during the pre-2012 years. The Study reports that the average cost of servicing a non-performing loan rose from $482 per loan in 2008, to a whopping $2,386 in 2015.
Given the growth in servicing costs for both performing and non-performing mortgage loans, the drive to double down on cost containment measures is certainly helped by rules-based decisioning. When combined with configurable workflow and integration with productivity tools, these technology-powered solutions can help manage non-performing mortgage loans more efficiently, and with fewer exceptions that might further drive up costs.
Evolving Loss Mitigation Options
Without HAMP as the standard-bearer for mortgage loan modifications going forward, it can be expected that other loss mitigation programs will eventually fill the gap. Homeowners in the U.S. still need options that can help them stay in their homes if financial situations arise that make it impossible to meet their obligations on existing mortgages. In fact, the Black Knight Financial Services August 2016 Mortgage Monitor Report showed that nearly 2.2 million U.S. residential properties were 30 days or more past due, though not yet in foreclosure. It is not unreasonable to expect that at least some of these past due mortgages are associated with homeowners who would like to stay in their homes if they can qualify for an affordable alternative.
While as of this writing, a direct alternative to HAMP has not been announced, it is probable that other loss mitigation programs will either remain in place – such as those specific to a particular financial institution – or evolve into something along the lines of the “One Mod” option some in the industry are suggesting. If so, many of the data and technology-based capabilities that are in use today can be expected to evolve as well to enable servicers to accommodate new or updated processes, procedures and rules that may be required. It is also a good bet that servicers will always be required to carefully track and record each step in the loss mitigation process so auditors can conduct reviews of the options that were considered, and validate that consumers were provided with fair and equitable outcomes given the range of options for which they qualify.
The Drive for Customer Satisfaction
At the heart of every loss mitigation initiative is the servicer’s desire to deliver a positive customer experience, even under difficult circumstances. In this regard, rules-based technology helps by ensuring that timely information is provided to customers as mandated by regulators, and supported by the servicer’s internal policies. Of course, all mortgage loan customers who are involved in a loss mitigation process are assigned a Single Point of Contact (SPOC) by their servicer to help keep them informed throughout the process, while minimizing confusion or concerns as mitigation efforts proceed.
Once a borrower has been approved for a loan modification, repayment plan, or other mitigation program, technology helps to ensure that all relevant information is transferred to the servicing platform where it can be kept current and readily accessible should customers have questions or concerns. Nothing is more upsetting to a struggling borrower than to experience a difficult financial situation, be accepted for a mitigation option that will allow them to stay in their home, only to later find that information about their mitigation program is unavailable when they call.
For most servicers, this is an unacceptable outcome. They have invested in the technology, people and business practices that are needed to provide customers with the answers they want, when they want them. They have also committed to customer satisfaction as a driving principle, and made it a top priority across their organizations.
While change continues to be the norm for the mortgage industry, it has also been the impetus behind many powerful technology developments that enable servicers to evaluate loss mitigation options with a high degree of accuracy and outcome consistency. These developments have enabled significant transparency into the mitigation process, and helped over 6 million homeowners find a way to stay in their homes through modifications and other options.
With its ongoing commitment to identifying the best possible options for struggling homeowners, the mortgage industry will remain a vital partner in helping consumers to achieve their dream of homeownership. By leveraging tech-powered, rules based loss mitigation processes and enabling transparency into the way decisions are made, servicers can successfully deliver on this commitment with confidence.