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Fixing a Flawed Process [Mortgage Banking](Mortgage Banking Via Acquire Media NewsEdge) Servicers have an opportunity to turn a flawed process into something positive when it comes to working with troubled borrowers. Here are some best practices for how a single point of contact could work. Unprecedented levels of seriously delinquent loans are transforming the servicing industry. The Office of the Comptroller of the Currency (OCC)7 the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS), collectively referred to as "agencies," conducted on-site reviews of 14 of the largest mortgage servicers in the fourth quarter of 2010. They found that previously successful loss-mitigation and foreclosure workflow processes - designed for relatively low volumes - are no longer able to withstand the avalanche of activity. * The large number of borrower complaints around the modification process, combined with the possibility that borrowers are potentially losing loan-modification opportunities due to servicer inefficiency, is a major concern on Capitol Hill and in other federal government circles. * In April of this year, Acting Comptroller of the Currency John Walsh, in remarks before a Women in Housing and Finance association luncheon, noted, "We found significant deficiencies that represent not only unsafe and unsound practices, but a breakdown in the way customers are treated." The traditional separation of duties within a servicer's operation - which often results in multiple handoffs, borrowers repeating their story several times to multiple people and lost documents - is a significant concern identified by all the agencies as well as Fannie Mae and Freddie Mac. The agencies believe the industry must implement a solution that will simplify the process from a borrower's perspective, reduce complaints, and result in faster and better resolution for delinquent borrowers. While strategic defaults do exist, the majority of borrowers in default are victims of unemployment, underemployment and the serious decline in home values over the last several years. The average borrower experiencing financial hardship may not understand his or her relationship to the servicer and may be confused as to how to obtain relief. To remedy this challenge, the agencies have mandated servicers provide dedicated, individual resources for communicating with borrowers, referred to as a single point of contact (SPOC). The role of the SPOC is to be a one-stop shop for borrowers throughout the loss-mitigation and foreclosure processes, reducing borrower confusion by providing continuity in the handling of borrower cases. Once implemented, the SPOC becomes a "concierge" for distressed borrowers. The primary objective of establishing a SPOC is to develop relationships and eliminate handoffs. Further, it capitalizes on personal accountability at an individual level inside a servicer's shop. Implementation of SPOC can be a cumbersome and difficult process, encompassing a number of individuals and departments within the mortgage bank. As servicers strive to implement SPOC by Fannie Mae's announced compliance date of Oct. 1, 2011, consideration should be given to the following six key issues: * borrower communication; * documentation management; * staffing model; * re-underwriting the loan; * training; and * organization structure Overhaul borrower communication The first step in establishing a sound relationship with the borrower is to develop an effective communication plan. Vickie Lester, senior vice president and loan servicing manager at Doral Bank, San Juan, Puerto Rico, notes, "It will be imperative for the SPOC to take the time to understand and document the borrower's financial situation and the reason for delinquency." Working in collaboration with the borrower, the SPOC should develop a detailed foreclosure-prevention plan. The plan should focus on resolving the delinquency either by paying the delinquent amount or by engaging in a foreclosure-prevention alternative like the Home Affordable Modification Program (HAMP), Home Affordable Foreclosure Alternatives (HAFA) program or a proprietary loan-modification program. Key components of the plan include a financial checklist that details the borrower's situation - cash flows, proof of employment status, military status, and so on. Once developed, the borrower's financial situation should be monitored on a monthly basis at a minimum, to confirm status quo, and any changes should be documented in the foreclosure-prevention plan. Collecting accurate borrower financials may be challenging, depending on the borrower's circumstances. Many distressed borrowers have never had to produce financials before, because their loans were no-documentation or low-documentation loans. The borrower may require some hand-holding throughout this process to obtain the right information and corresponding documents. Collecting borrower financials has always been a lossmitigation core competency; traditionally servicers have used the call center and therefore multiple agents to perform this task. Having a single person focus on this activity should limit the number of times a borrower has to tell his or her story and perhaps reduce some borrower frustration. The SPOC should ensure that the borrower has a clear understanding not only of what documents are required but also how to obtain them. As a supplement, the servicer should post online a list of documents required for the foreclosure-alternative process, including examples and brief explanations of the contents of the documents. A borrower should be assigned to a SPOC as soon as he or she misses a payment, is at risk of default or reaches out to the servicer claiming financial difficulty. Doral Bank's Lester also feels reaching a troubled borrower at this early stage affords the SPOC a better chance of finding the best available foreclosure alternative. "The longer contact is delayed, the fewer options will be available to the borrower," she says. Many borrowers facing financial hardship are unsure of their options, if any, and how to take advantage of the foreclosure-alternative programs offered by their servicer. Internet searches produce hundreds of websites purporting to offer help, and further review reveals that everyone wants a fee; often these advertised borrower-assistance ventures want the money upfront to negotiate a loan modification - a free service offered by servicers. Such demands for money to assist in Loan modifications are being viewed by various state attorneys generals as fraudulent. In September, Illinois Attorney General Lisa Madigan charged several mortgagerescue companies with using their attorneys to collect upfront fees and misleading distressed borrowers. Borrower communication developed by servicers should include all available options for borrowers, including free foreclosure-prevention help from Fannie Mae's www.knowyouroptions.com website and free counseling offered by the Department of Housing and Urban Development (HUD). Borrowers are often misinformed about the impact of a loan modification on their credit score and their future ability to borrow. The SPOC should explain the different types of foreclosure alternatives like loan modifications, short sales and deed-in-lieu, and the impact of all these alternatives on the borrower's FICO® score. Posting this information to the servicer's website is a best practice. The SPOC's role should be to provide a clear picture of the process, making sure the borrower understands all the options and the projected timeline for the activities, and should include obtaining a commitment from the borrower to work with the servicer to resolve the delinquency. Personalizing all written communication between the servicer and the borrower is another essential part of the process. Similar to "hello and goodbye" letters used to transition servicing from one servicer to another, letters that smoothly transition borrowers from one SPOC to another should be implemented so borrowers know how to reach their SPOC at any time throughout the process. Avoiding the 'lost document conundrum' Lost or misplaced documentation is a familiar complaint voiced by many borrowers. Making quality loan documentation easily available to SPOCs is yet another critical piece of the puzzle that needs to be quickly addressed. To this end, some organizations are setting up centralized document-management departments to ensure the accuracy and completeness of files, while others are taking a decentralized approach, having SPOCs work with custodians, borrowers and others to create a complete and accurate file. Both approaches can work, provided robust policies, procedures and process exist around the document-management process. In many cases the borrowers may have sent incorrect documents (i.e., a handwritten income verification) that cannot be used in a loan modification. Borrowers get confused and frustrated when a different call-center agent requests the same document the borrower has already submitted (albeit incorrect) or, in the worst-case scenario, the borrower does not hear back from the servicer and is disqualified from getting a modification. Having a SPOC manage this process will significantly reduce the complaints and the resulting borrower frustration. Another aspect to managing lost documents is improving the technology used to capture documents submitted by borrowers. Servicers should consider developing a customer portal similar to a loan origination system (LOS), so the borrower has an easy mechanism to upload and submit the required financials. The HOPE NOW alliance has developed an effective solution, HOPE LoanPort®, to streamline the transmission of documents between borrowers, counselors and servicers. HOPE LoanPort is designed to eliminate lost borrower paperwork and allows counselors to better manage documents by electronically saving a copy of the document. If documents are submitted through the mail, robust document-handling processes that tag and manage the documents should be developed. Creating barcodes for all documents that identify the document by loan number, name of document and date received is a best practice. Using barcodes will allow the servicer to track and manage the time required to image or scan the document and make it available to the SPOC. Develop a robust staffing model and increase right-party contact Developing an intimate relationship with the borrower completely changes the typical servicing paradigm of managing call-center productivity using metrics like "talk time" and so on. Talk time is used to ensure maximum coverage with limited resources. Ineffective management of talk time without dramatically increasing call-center resources can have disastrous effects on other critical metrics. These other metrics include average speed to answer (which must be 60 seconds or less, according to Fannie Mae) and call-abandonment rate (the number of calls not answered divided by the number of inbound calls), among others. A focus on understanding the cause of default and working intimately with the borrower to cure defaults will require servicers to develop and manage a new breed of mortgage servicing call-center metrics like rightparty contact (RFC) rate. The RFC rate is defined as the number of attempts required in order to speak to the right person divided by the total number of attempts made. Typical RFC rates can be very low and are affected by time of day, day of week, incorrect phone numbers, and so on. In other industries, the RFC rate is in the single digits or low teens. Improving RFC can have a dramatic effect on reducing staffing levels. Servicers will have to closely monitor the quality of the phone numbers on their files. If bad numbers are present, they should consider skip-tracing, reverse lookups (using borrower names to identify phone numbers) and training employees to use every inbound customer contact opportunity to verify the borrower's contact information. Staffing models for managing the distressed loan-toemployee ratios are critical for success. Models should take into consideration the number of loans per delinquency bucket and the staff required to adequately service them. The number of Spanish-speaking SPOCs to customers is another ratio that should be considered. Metrics such as number of full-time equivalent (FTE) per distressed loan and backlog per employee are also important to track and manage. In 2009, the average number of loans in foreclosure to employee ratio was 236:1, according to the Mortgage Bankers Association's (MBA's) 2010 (ital) Servicing Operations Study and Forum (SOSF) (end) (using 2009 data). To effectively implement SPOC, these ratios need to be closer to 150-125 loans per employee. Large servicers are rapidly moving to close the gap. According to an April 201 1 article in The Wall Street journal (WSJ), servicers such as JF Morgan Chase & Co., Bank of America (BofA) and Citigroup inc. said they have significantly increased the number of employees focused on loan modifications - as of April 29, 2011, JP Morgan and BofA have each added 3,000 employees to work on troubled loans, while Citigroup has added 500. Re-underwriting the loan Complete transparency with the borrower is important, and when the time comes to re-underwrite a loan, the servicer, via the SPOC, must eliminate the mystery from the loan-modification qualification process. Simply put, the SPOC is responsible for explaining why a borrower qualified for a program or did not qualify for a modification. The supporting processes must be clear, recreatable and, if needed, repeatable by a third party. Re-underwriting a distressed loan is a best practice employed by several specialty servicers. During this process, all available options are clearly laid out for the borrower and the servicer based on the borrower's financial situation, the characteristics of the loan and current market conditions. Most importantly, the SPOC eliminates confusion for the borrower by narrowing the list of possible alternatives and establishing a timeline for completion of the plan. Successfully re-underwriting a distressed loan will require the SPOC to work closely with the borrower to ensure the borrower's financial package is complete and accurate. Once this has been achieved, the documentation is handed off to a dedicated loss-mitigation specialist or underwriter. The underwriter should perform an audit of the loan file to ensure that the loan accounting is accurate, standing is verified (the servicer has the ability to foreclose, if needed) and that all required collateral documentation is readily available and accurate. After ensuring the file is accurate and complete, the underwriter should re-underwrite the loan by evaluating the borrower's financial situation and the value of the home. The underwriter should consider all foreclosure alternatives, including HAMP, other loan-modification/ forbearance programs, deed-in-lieu and short sale. Working with the SPOC and the borrower, the underwriter should ensure that all foreclosure-prevention alternatives are exhausted. Re-underwriting distressed loans can be a significant undertaking, and is labor-intensive for the SPOC and the underwriter. To ensure that these valuable resources are spending their time efficiently, servicers should consider utilizing junior-level resources to chase documents and follow up with borrowers to ensure documents are submitted on time and accurately. These junior staff could also work with other departments such as escrow management to ensure all information required to re-underwrite the loan is accurately captured. The SPOC should continue as the borrower's single point of contact and advocate until resolution. For example, if the underwriter determines that a short sale is the best option for the borrower, the file gets passed to the short-sale team. However, the SPOC should continue to be involved in the process and lead all communications with the borrower. Similarly, if foreclosure is the only option, then the SPOC should work with the borrower through the completion of the foreclosure process. Training The implementation of SPOC is a new paradigm for the servicing industry. Extensive training programs have to be developed and implemented to prepare an organization to implement SPOC. Anyone who might have contact with a borrower should be trained on the role of the SPOC and what procedures need to be followed to transfer calls to the SPOC. Training programs should also cover methods for collecting and updating customer contact information, a critical component of improving RFC rates. The SPOC and underwriter must also be trained in all available loss-mitigation options; foreclosure procedures; bankruptcy procedures; federal, state law and investor requirements. Servicers that have Secure and Fair Enforcement for Mortgage Licensing Act SAFE Act) compliance requirements must ensure their staff is certified prior to starting any loss-mitigation activity with borrowers. Re-vamp your organizational structure There are two emerging schools of thought in terms of implementing SPOC: The first involves transitioning to a "pod"-based approach; and the second involves having the SPOC act as the interface or a "concierge" between the borrower and the various departments. Both approaches require the addition of new staff, technology and training. A pod-based design comprises a team focused around the servicing needs of an investor. This type of team-based approach can help address operational concerns like coverage - i.e., staffing on weekends or during vacations, and extended hours. If the SPOC is not available, others that work with the SPOC can address the borrower's calls and concerns. Specialization in investor rules and a detailed understanding of all aspects of the loan by multiple people in the pod are benefits of this approach. Similar to the pod-based approach, with the concierge approach the SPOC functions as a one-stop shop for all foreclosure-related borrower inquiries. However, under this approach SPOCs are not specialized by investor rules and rely on the respective departments to appropriately execute the process. Impediments to successfully implementing the SPOC Providing the single point of contact with the tools he or she needs to be successful is a universal challenge faced by servicers. Existing servicing systems were not built with a SPOC in mind. That makes it difficult to get a holistic view of the current situation of the borrower on a single computer screen. Easily viewing historical snapshots of the borrower file may be challenging in many of the current systems. Another issue is that SPOCs often have to navigate from screen to screen while looking for key pieces of needed information. Minimizing clicks while on the telephone with a borrower is essential to the overall success of the program. To remedy this, many servicers are implementing their own technology solutions to complement their servicing systems, which may differentiate them from the rest of the marketplace. It is too early to tell how well these systems will work or what the overall cost of development will be. Default servicing technology vendors such as Irvine, Californiabased DecisionReady Solutions Inc. and Columbia, Maryland-based IndiSoft LLC have out-of-the-box SPOC solutions. These solutions will allow servicers to manage the assignment of SPOCs and provide a holistic view of the customer by integrating information from disparate servicing systems. Finding the right SPOC candidate may be another challenge. In an industry that predominantly has been focused on specialization in disciplines like loss mitigation, foreclosure, escrow management and the like, the SPOC will be required to have a comprehensive understanding of the entire default-management process. The ability to empathize with the borrower and become a champion for his or her cause while balancing the needs of the servicing organization is a skill that cannot be easily taught. To address this, some organizations are actively recruiting loan originators to fill the role, while others are launching ambitious training programs to boost the knowledge of potential candidates. Careful consideration must be given to SPOC compensation and incentive structures to ensure the spirit of the mandate is not lost. A few servicers are considering grading the jobs higher than the regular loss-mitigation representative, while others are exploring adding an incentive-based component to the SPOC's pay structure. Organizations that are focused on making SPOC a success will be able to dramatically reduce customer complaints and unfavorable outcomes (i.e., foreclosures). As servicers continue to tweak the process, only time will tell how much it will cost, how much manpower it will require, what happens to these resources once foreclosures return to normal rates and how much technological work it will entail. For now, the SPOC will be the face of the company to its borrowers, and if implemented with the best interests of the borrower, investor and servicer in mind, SPOC could help reverse the current negative perception of mortgage servicing and restore confidence in the industry. A borrower should be assigned to a SPOC as soon as he or she misses a payment, is at risk of default or reaches out to the servicer claiming financial difficulty. The SPOC should continue as the borrower's single point of contact and advocate until resolution. Existing servicing systems were not built with a SPOC in mind. Beji Varghese is a director with Navigant Capital Advisors' Valuation and Financial Risk Management practice, based in Chicago. He can be reached at [email protected]. (c) 2011 Mortgage Bankers Association of America |