TECHNOLOGY
Technology is providing servicers with tools to increase efficiencies, cut costs, and raise profits.
Technology To The Rescue
By Jerry DeMuth
After the daily routine of turning on the lights in
their offices and pouring the coffee is completed, servicers
can then increasingly rely on an army of computer
software and electronic products to reduce workload,
raise efficiencies - and most importantly of all - produce a
larger profit.
Servicing-related technology, in its latest
developments, is making greater use of the Internet,
increasing the interfaces with third parties, expanding the
use of imaging and moving into all areas of loss
mitigation, including loan workouts and foreclosures,
starting with identifying borrowers most likely to default
on their mortgages and ending with the handling of REOs.
Until now, one of the weaknesses of the servicing
industry had been the lack of a system that "gathers
financial information (on a borrower) to determine the
best solution to a borrower's delinquency problem," says
Thomas Dungee, of Baltimore-based Mortgage Source
Ventures, whose new "Back In The Black" system does
just that. It pulls up all the relevant information needed
to talk to a late or delinquent borrower, presents the
questions that need to be asked according to agency or
investor guidelines, and then comes up with
recommended solutions.
This and other systems also help servicers meet the
increasing demands from FHA, VA, Freddie Mac, Fannie
Mae and private investors to find solutions other than
foreclosure to the problem of delinquencies.
These demands also increase the need for improved
interfaces with more third parties. Technology systems
now interface with Freddie Mac, Fannie Mae, HUD, the
IRS, local taxing authorities, insurance companies,
coupon vendors and others.
"We have several hundred interfaces that weren't
available 15 years ago when we introduced
MortgageServicer," says Barry Malone, vice president of
sales at Dallas-based Financial Industry Computer
Systems.
"There's more data interaction between other
vendors that servicers have to work with. All interface
transactions eventually will be done through the Internet.
You're no longer mailing or FedExing them a tape or
diskette. You're transmitting data through the Internet to
their site and they've automated their retrieval process.
So there's a lot less repetitive keystrokes, a lot more
automation of the servicing process itself."
The Internet
Many vendors are now turning to the Internet to
make it easier to meet reporting and other demands
being placed on servicers by agencies, investors and
others.
"Business-to-business applications of the Internet
are really just getting started," says attorney Denis
Pierce, whose firm, Pierce & Associates in Chicago,
specializes in foreclosures and bankruptcies for more
than 100 servicers.
"One of the challenges for everybody in the next
couple of years will be how to most effectively use the
Internet. The Internet will be an easy and inexpensive
way to do business."
These and other technologies are bringing increased
automation to more areas of servicing, including:
- loan setup and maintenance;
- cashiering;
- escrow administration;
- insurance tracking;
- payment and payoff processing;
- late payments;
- IRS reporting;
- investor accounting;
- customer service and default; and
- foreclosure management.
And more of the software programs that are
improving and increasing automation can be customized
to meet a servicer's specific needs or different loan
parameters.
For example, London Bridge Group markets a
Fortrac Windows-based default management system,
which allows users to create different user-defined fields
at the master level to apply to all loans or create fields
that are defined at the loan level.
Technology not only enables servicers to instantly
access, record and handle loan data, but, as part of
improved customer service, can provide customers with
instant access to data on their own mortgages, note
officials at Bellevue, Wash.-based Interlinq Software,
whose MortgageWare loan servicing systems can provide
short-term servicing for loans that will be sold servicing-
released as well as long-term servicing for in-house
servicing portfolios.
New technology can even promote customer
retention by identifying to servicers prime candidates for
refinancings.
Better loss mitigation
Much new technology is designed to improve loss
mitigation activity, from predicting and handling
delinquencies to smoothing and speeding the foreclosure
process and responding to bankruptcy filings by
delinquent borrowers.
Servicers can better identify and manage
subperforming and nonperforming loans with such new
software as:
- MSV's Back In The Black;
- Real-e by West Palm Beach, Fla.-based Ocwen Financial Corp.;
- DRI Management Systems' Default Management System; and
- Freddie Mac's Early Indicator.
These systems not only provide loss mitigation
calculation and analysis, but also calculate and schedule
forbearance payment plans.
The DRI system, for example, handles loss
mitigation, bankruptcies, foreclosures, REOs and claims,
managing foreclosures and REOs through to final sales as
well as working out payment plans while the delinquent
borrower is online. It then monitors those plans, sends
letters and takes other actions when necessary.
The probability of a delinquent borrower becoming
more delinquent, necessitating foreclosure action, can be
determined by EarlyIndicator, a risk-management tool
that was developed by Freddie Mac and Mortgage
Guarantee Insurance Co. By analyzing numerous loan
variables, and assigning a numerical collection score and
a numerical loss mitigation score to each loan, it
pinpoints the delinquent loans that are most likely to
generate a loss and identifies which loans should be
targeted for a collections campaign and which are most
likely to be brought current without servicer intervention.
"Servicers report that EarlyIndicator has cut their
volume of outbound collections calls by 30% to 50%," says
a Freddie Mac spokesman. "With the cost of each attempt
[to call a late or delinquent borrower] ranging from $2 to
$3, the reduction in calling frequency generates
tremendous potential for savings and the re-deployment
of resources toward loss mitigation."
Recent analyses also show that EarlyIndicator, when
used with Freddie Mac's work rules, can result in 50%
fewer property inspections, 25% fewer loans needing
proactive loss mitigation and 10% fewer foreclosure
referrals, according to the company.
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