Following the 2008 financial crisis, the U.S. mortgage industry saw an unprecedented spike in mortgage defaults, bringing default mortgage servicing under heavy scrutiny. Since then, default servicing in mortgage has also been subjected to various government-mandated programs such as HAMP and HARP, industry regulations, settlements, procedure updates, and more. These have resulted in a messed-up mortgage landscape marked by inefficient processes, disparate systems, and high operational overheads, thus hitting the bottom line of the lenders hard.
If this wasn’t enough, the ongoing COVID-19 pandemic has inflicted far-reaching impacts on the industry stakeholders. With borrowers unable to keep up with their repayment schedules, the industry is witnessing record levels of delinquencies, threatening the survival of even the biggest names of the industry. With the interim relief programs by the governments lacking the promise of a long-term resolution, the only way out for lenders and servicers is to streamline their mortgage default servicing process and prepare to address loan defaults more efficiently.
Factors Stopping Lenders from Realizing a Successful Default Management Process
Operational Inefficiency
Mortgage workflows are usually characterized by tedious and resource-consuming sub-processes handled by large teams of professionals. At times, even the best managerial procedures and tools fail to streamline the workflows pertaining to mortgage servicing and default management. When there is a spike in loan default instances, it usually results in overlapping or missed procedures and regulations caused mostly by disjointed teams messing up the system. Mistakes such as sharing information with unintended users and operational glitches attributable to the lack of process transparency are common.
Reliance on Disparate Systems
Most so-called ‘advanced-technology’ mortgage companies are guilty of degrading their workplace ecosystem with silo systems that manage different sub-processes of the bigger workflow. This not only complicates and shoots up the IT maintenance costs by also invites grave operational imbalance. Since there’s usually no data exchange between such task-oriented applications, consequences such as information loss, non-ubiquitous access to updated and real-time data, and the need for substantive manual intervention are common. These result in poor customer experience and, in turn, business loss.
Resource-hungry Processes
The mortgage industry, besides the plethora of operational procedures, is subjected to frequent changes in industry regulations. Moreover, mortgage default management involves close coordination with external stakeholders and customers, which can stretch for long periods of time, making the end-to-end process highly expensive. The numerous operational reports, procedures, and touch-points to establish cross-functional coordination make mortgage default servicing a financial concern for lenders.
Complex Regulatory Compliance
As touched upon in the previous point, the mortgage landscape is guided by constantly evolving regulations pertaining to various aspects of the industry, such as tax information, legal approvals, default management, information sharing, and more. Any instance of failing to adhere to these could imply serious consequences for the lender. To stay on top of their game by maintaining sync with the dynamic regulations, lenders employ regulatory experts, adding significantly to their operational costs.
Long Turnaround Time
Servicing mortgage defaults isn’t a one or two-day affair. The complex procedures and the involvement of multiple stakeholders invariably stretch the turnaround time. This leaves the in-house teams wanting more time as they can’t focus on their core areas. Thus their performance and hence the company’s bottom line take the worst hit.
What Comprises Effective Mortgage Default Management?
First, let’s get the basics right – the beginning of an error-free and cost-efficient mortgage default management process is the decluttering of the lender’s back office scenario. All the problems listed above are a result of the inefficiencies and indiscipline in the approach of the lender, thus making it the starting point of the road to improvement. Processes and sub-processes must be arranged and optimized, document management has to be perfected, the workforce well-equipped, and the infrastructure in-line with the demands of the market. Only then, a successful default management process can be realized in the true sense.
Efficient Collections and Repayment
The back-office team has to complement its customer-facing counterparts to ensure timely repayments from the borrower. This includes tracking payment discrepancies, categorizing default borrowers, managing and sharing the right information, managing legal issues, and regular follow-ups with borrowers are other stakeholders. When the collections team is relieved of such backend workloads, it can focus better on its core job.
- A well-laid-out plan for timely payment recovery.
- Track payment discrepancies and dispatch ‘letter of demand’.
- Segregate borrowers into segments.
- Employ specialists to optimize resources.
Accurate Opportunity Size-up
Before committing to a borrower, the lender’s team must accurately evaluate the borrower’s financial health to ascertain their loan adjustment eligibility. However, this entails massive documentation that includes unemployment benefits data, non-payment records, invoices, and many more, which needs the expertise of specialists. The good news for lenders is that there exist expert mortgage servicing firms that generate and maintain reports about property condition, the existing market value, and the market mood to ensure that the client gets unsettled mortgage amounts at the earliest.
- Efficient document management (payment default records, bills, etc.).
- Assess borrower’s eligibility for loan modifications.
- Determine loan restructuring and initialization of short sale procedures.
- Comprehensive property reporting.
Mortgage Claims Processing
Special attention must be devoted to the preparation of claims for collaterals and the same must be sent to the default management team for evaluation and processing. For this, relying on the age-old manual practices of managing information wouldn’t bear fruits. The lender’s side must also maintain accurate property records so that auditing those wouldn’t be a cause of concern for the team. The ability to precisely determine the recovery possibilities and spot the best way to mitigate losses is important for making real-time decisions.
- Preparation of accurate claims for properties.
- Maintenance of records and reports.
- Accurate curtailment amounts.
- Determine the best-suited recovery and loss mitigation way.
Property Retention and Liquidation
An assessment of the financial capacity of the borrower and routine follow-ups with them have proved to be highly effective in recovering loan amount. The lender must have the required resources for comprehensive back-office support for handling the end-to-end process from HAMP modification to property liquidation to recover the due amount. In case the borrower fails to continue with the repayment through HAMP modification, a deed in lieu of foreclosure and short sale must be generated.
- Evaluate the recovery options to determine the preferable choice.
- Back-office support for property liquidation, HAMP modifications, etc.
- Consider the short sale of a property to recover a portion of the due amount.
- Continuous non-payments must naturally lead to a deed-in-lieu of foreclosure.
A Competent Mortgage Default Management Service Provider is the Safest Bet for Lenders
It’s undeniable that the mortgage industry has largely been understaffed ever since its conception. Multitasking has always been a trait of the professionals in the industry, and surprisingly, the sailing was quite smooth until the outbreak of the COVID-19 pandemic. Besides the threats that the virus poses to business and life, the crisis has fully exposed the bottlenecks of the mortgage industry. For a sector that has been primarily riding on manual processes and archaic systems to keep operations running, the new normal of work has caught it off-guard. With more than half the workforce working remotely, leveraging the latest technology and expert services is no longer a choice but an absolute necessity for all lenders. Here’s why outsourcing mortgage default management to a proficient mortgage services provider is the present and the future of the industry.
Equipped to Take On Modern Challenges
With time, the challenges facing the mortgage industry have also evolved and can no longer be handled in the old way. A technology-backed mortgage services provider brings to the table solutions such as ERP, CRM, and Automation to make mortgage default servicing a breeze for the clients. It can deliver omni-channel self-service solutions for managing mortgage accounts and payments to ensure better user experience and faster turnaround times. Predictive analytics and artificial intelligence can help lenders in effortless loss mitigation and loan modification.
Round the Clock Availability
Today, the market dynamics are such that working for 8 or 10 hours a day doesn’t take lenders any nearer to success. For an exceptional mortgage default servicing process, service providers leverage their multiple delivery centers that are usually located in different time-zones. Thus, the client’s side gets access to reliable, 24/7 default servicing in mortgage, which ultimately reflects on their enhanced operational efficiency and improved customer satisfaction.
Pocket-friendly
Cost-optimization is one of the primary targets of all businesses; it is their trump card for survival and profitability. Mortgage service BPOs are a no brainer in this context. With a broad array of flexible pricing options crafted for specific default management needs, external service providers bring much-needed relief to lenders struggling with high operating costs. The external mortgage default management services team doesn’t need additional training or resources and can be hired at just a fraction of the amount the companies pay on their in-house default servicing experts.
Scalability
With experts taking the reins of loan recovery management, the core team is relieved of the daily firefighting. The management realizes an enhanced ability to take on operational surges while maintaining the quality of services. The core team can now focus on its growth ambitions and tap unexplored opportunities, with the luxury of adding or trimming the vendor’s workforce as per operational needs. To keep things simple for the client, the vendor appoints a project manager who acts as the point of contact to keep the client updated on the latest developments.
Data Security
Even the smallest threat to the safety and integrity of business and customer information is enough to give many sleepless nights to the company leadership. Reputed mortgage default process experts understand the consequences better than anyone else does. They count on the safest digital security solutions such as VPN, data encryption, restricted access, and cloud storage to establish a secure data backup and recovery procedure to weed out all chances of data loss or tampering.
Regulatory Compliance
External mortgage BPO services employ experts who are well-accustomed to the ins and outs of the regulatory scenario of the industry. They can predict most of the major upcoming requirements either from the federal government or any regulatory body and help the client prepare for the same. Service providers are quick to recalibrate their existing digital solutions to be in line with the regulatory updates to ensure the continuity of operations without sudden failures or any inconveniences.
Who We Are and Why Our Expertise Matters
As an experienced mortgage processing services provider with over a decade of industry exposure, Expert Mortgage Assistance (EMA) offers end-to-end services to lenders and appraisal businesses. Armed with cutting-edge digital solutions, our seasoned industry professionals have created unique and highly effective ways to transform mortgage default management into a profit-making aspect of the lender’s mortgage ecosystem. Our clients trust us for our high-throughput services that enable their in-house teams to focus on the other attention-demanding areas. We also assume full responsibility for the regulatory compliance needs of lenders and adhere to the industry best practices to pursue operational excellence and a tempting bottom line for them.
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