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Up in the Air: Assisting Borrowers in Default

Editor's note: this piece originally appeared in the May edition of DS News.

The prospect of losing one’s home is frightening and stressful. For our May issue, DS News spoke to servicing executives about how they are working diligently to counsel borrowers through this often-intimidating process, and to help bring borrowers back from the brink of default. From technological innovations that enable accurate prediction of who may be at imminent risk of default, to borrower education programs to help better clarify the process, to the critical human factor, here we explore how servicers are working to make a painful and difficult process as clear and humane as possible.

Whether the borrower is ultimately able to remain in their home or not, it’s incumbent upon the servicer to guide them through the process with professionalism, empathy, and dignity. Here are the ways modern servicers are striving to do just that.

AVOIDING THE IMPACT

Not surprisingly, many of those we spoke to emphasized the importance of being proactive in terms of both borrower communication and education. After all, the ideal way to deal with a default is to avoid it in the first place, and ensuring that the lines of communication are open at all times can be critical.

“Our philosophy is always to communicate with borrowers early and often, and in as many ways possible,” said Courtney Thompson, Director of Default Servicing Operations for Flagstar Bank. “From changing the time of day we communicate based on borrower behavior, to tooling and retooling the message we send, to leveraging multiple means of communication, whether written, telephonic, or electronic–we try to meet the borrowers where they are.”

“As credit standards are changing and more lenders are entering the non-QM space, we’re seeing servicers focus on better identifying which borrowers are at risk of default,” said Susan H. Connally, VP of Surveillance Operations for Radian. “Risk scoring has always been in place, but we’re seeing many servicers changing their monitoring and identification of borrowers who may be at risk of default, incorporating more information about payment statistics.”

Thompson echoed this point, explaining that Flagstar monitors loans for risk of default involving the use of an “early indicator risk model” that monitors (among other things) borrower payment activity. “If I’m a customer who normally pays on the fifth of the month, and today is the fifth, I’m considered less of a risk than a customer who normally pays a day early who hasn’t paid by the fifth of the month,” Thompson said. “Those borrowers
appear as high-risk in our model and are called earlier and/or more frequently.”

David Hughes, SVP of the Contact Center for RoundPoint Mortgage Servicing, told DS News, “Having borrower relief programs is wonderful but ultimately worthless if you haven’t effectively informed your customers before it’s too late to help. If we have waited until almost two months into delinquency, we’ve failed. We spend a great deal of resources keeping our borrowers informed of options well in advance of any problems.”

Hughes emphasized that the methods of borrower communication are just as important as ensuring that the outreach happens. It can also be a numbers game.

“Reaching out to borrowers with just one or two methods isn’t enough,” Hughes said. “You have to offer multiple mediums of communications and education in order to be successful.” This also requires servicers to recognize that borrowers have different needs and preferences for how they prefer those communications happen. Some prefer to interact solely through their screens and devices, while others need the human touch of actually speaking to a servicer representative.

Hughes outlined six primary styles of communication that borrowers can benefit from:

  • Visual—Need to see it in print or on a screen. Graphics and images are particularly helpful.
  • Aural—Need to hear it, via a phone call or video.
  • Print—Need to write it down, take notes.
  • Tactile—Need to DIY, forget written instructions and just dive in.
  • Interactive—Need to discuss, dissect, and deliberate, preferably in groups.
  • Kinesthetic—Need to move, to act out the concept instead of reading about it.

Hughes said that RoundPoint’s servicing model includes as many of these mediums as possible when educating and communicating with borrowers.

“This is when it pays to get creative and take advantage—proactively—of every available technology opportunity such as instructional help videos, webinars, chat, video chat, chatbots, infographics, and email, as well as time-tested methods like phone calls, mail, and even in-person meetings.”

Joe Chappell, EVP of Covius Settlement Services, told DS News that it’s crucial that the various systems involved in tracking and servicing the loan can communicate accurately and efficiently.

“Many times systems aren’t integrated well, or systems are not current, so they haven’t been updated with information or content from previous interactions that have taken place with the borrower where information has been stored in other systems,” Chappell said.

This can understandably lead to frustration and confusion for all parties—not ideal during an already stressful situation such as delinquency or default.

Jacob Williamson, VP of Single-Family Real Estate for Fannie Mae, emphasized the importance of building trust between borrowers and servicers. That trust begins early in the process and carries on throughout the lifecycle of a loan.

“The ease of how a borrower gets a question/inquiry resolved, how effective a servicer’s website is in providing helpful and easy-to-understand information, or how well a servicer conveys empathy and service are all experiences that quickly determine a borrower’s trust,” Williamson said. When this trust is established right out of the gate, Williamson suggested that they are more likely to be responsive should they become at risk of default.

Williamson also stressed the importance of utilizing data to prioritize proactive engagement.

“With the continuing maturity of the mortgage and credit data landscape, servicers have and must continue to evolve in how they utilize this data,” Williamson said. This includes maintaining up-to-date information about a borrower’s other credit history, including auto and credit cards. “These pieces of information, if utilized properly, can provide early signals about a borrower’s risk of default or the severity of the default when it happens.” Monitoring these factors provides servicers with the chance to reach out and better coordinate strategies or counseling opportunities.

PROVIDING HOPE IN DIFFICULT TIMES

“Both Carrington’s lending and servicing business are tilted toward underserved borrowers,” said Raymond  Brousseau, President of Carrington Mortgage Services. “Dealing with borrowers that are on the cusp of default or who have the propensity to default is something we’re very familiar with.”

Brousseau described the typical Carrington customer as an average, middle-income American. However, for many such Americans, Brousseau pointed out, an unexpected expense such as a blown hot-water heater or a popped tire can be the only thing between paying their bills on time or falling delinquent.

“When a borrower is struggling, it’s important for them to feel that they have hope and that they have the opportunity to solve their problems,” Brousseau said. “An automated website isn’t going to provide that, but talking to a loan counselor who can understand their issues, and talk to them about ways to solve those problems is critical. That borrower comes away feeling like, ‘I might be able to get through this.’”

Radian’s Connally underscored the importance of providing delinquent borrowers with all the information they need about their available options is crucial. This can include mediation or other strategies to move those loans through the process quickly, especially in states with longer foreclosure timelines.

Hughes said that having a servicing system that relays information to staff quickly and clearly is vitally important when dealing with confused or worried borrowers who may not fully understand their options.

“It does no good to overwhelm borrowers with unnecessary information or prolong a discussion to reach
the objective,” Hughes continued. “It is also crucial to manage borrower expectations honestly. Even if there is bad news to deliver, they will appreciate hearing the truth, along with helpful options and next steps.”

Hughes also emphasized the importance of speeding up the decision-making process. “If your borrower applies for assistance on day one, do your best to trim the process cycle time down and fast-track the review time,” Hughes said. “Bottom line—borrowers are more apt to work with and trust lenders/servicers that communicate with transparency and speed.”

Where possible, Williamson advised that servicers establish a single point of contact (SPOC) structure, “so that borrowers can have a personalized interaction, and they don’t have to continue retelling their story to multiple parties, adding to the stress and frustration of the situation.” He also recommended having a robust system, strong loss mitigation and call center specialists, and a comprehensive training program for all involved personnel. That way, if a handoff must occur, “the receiving specialist is armed with the history creating a more connected experience for the borrower.”

Thompson told DS News that Flagstar keeps a strong focus on the first 60 days of default.

“Once a borrower goes over that 60-day mark, when they owe three mortgage payments to the bank—the average American just doesn’t typically have that amount of money available in their checking account, and they have a much more difficult time catching up.”

She added that, beyond that 60-day point, the commitment to communication remains, but the tenor and tone of the conversation, and the potential borrower end goals, shift.

“We know that that’s a sensitive time period, because circumstances are much trickier with the borrower’s ability to repay and the bank’s ability to help. Because of this, we try to be even more cognizant of our words and our approach. We try to focus on the borrower ability to repay the obligation with our language, like shifting from the word ‘home’ to ‘property,’ but still try to be as sensitive and as human as possible.”

When dealing with delinquent borrowers, Thompson said Flagstar operates on a “Three Rs” system—reinstate, repay, refer to loss mitigation.

“Our initial focus is pure—to try to get the customer to bring the loan current through reinstatement, and if access to funds now is an issue, we talk the customer to a solution that they can afford on the short term to make up for missed payments—maybe they can make a payment and a third for the next three months.”

The process then shifts to the final R: referral to loss-mitigation. At this stage, sensitivity, empathy, and borrower engagement can be more crucial than ever, and Thompson revealed that keeping borrowers current with Flagstar is so important that its collection team is incented to work with borrowers to apply for loss-mitigation programs.

Williamson told DS News that, although Fannie Mae always encourages a borrower to contact his/her servicer early, if a servicer can provide accessible and robust self-service tools and educational resources for loss mitigation options, this can help the borrower understand his/her available options and prevent misinformation. A servicer’s mobile application can often be a great avenue to deploy some of these self-service tools and educational resources.

Brousseau said that, for Carrington’s servicing business, “our associates know that the number-one job is to keep the borrower in their home.” With that goal in mind, the company communicates with borrowers early and often, reaching out as early as when the borrower is only 10 days later on their payment. “Those conversations are open, nonthreatening, and helpful,” Brousseau said. “If you establish that kind of relationship at the very beginning, the borrower is more likely to talk to when things get difficult.

THE TECHNOLOGICAL FRONT

While the shape and speed of innovation are apparent on the origination side of the business, the ways technology is changing default servicing are often more practical and less glamorous—but no less important.

However, Chappell observed that the low-volume environment can often make it difficult to justify the expense of innovating in the default space, leaving many legacy systems to languish.

“For example, the adoption of electronic signatures has been a very slow process on the default and servicing side despite its potential for improved quality and customer experience,” Chappell said. “Where you’ve got a large digital push on the origination side, digital adoption continues to lag on the default servicing side.”

Chappell added that the servicing platforms themselves tend to be “large and legacy-centric, with a lot of adjacent systems hanging off of them.” As such, “the modification to a core servicing system can have a lot of unintended consequences, so it can be a high-risk proposition to get significant changes implemented.”

Nevertheless, there are areas where the path to progress isn’t quite so daunting. Connally said that call centers are benefiting from improved dashboards, making it easier for staff to answer the borrower’s questions.

“This provides reps with ready-made answers that are consistent from borrower to borrower, and servicers can then roll that out to their websites and mobile applications, so borrowers have more information at their fingertips.”

Connally added that many servicers are looking at how banks use their apps and websites to communicate with their customers, and are leveraging many of the same ideas and technologies.

“We’ve seen servicers include YouTube videos on their websites in order to explain how certain billing statements or disclosures around escrow should be read,” Connally said. “It’s about giving borrowers the tools they need to understand the information that’s coming from the servicer, to eliminate or reduce questions going forward, but also about giving that borrower the support they need to understand their situation and the documents being received.”

Hughes spotlighted the advancement and industry adoption of Application Programming Interface (API) in the default space, which he said has made ordering and receiving vendor services such as property title, valuation, and credit reports faster and more efficient. “In turn, those efficiencies yield improved cycle times to evaluate borrower requests for assistance and a better borrower experience,” Hughes said.

“Data about the borrower often has to be shared or distributed to multiple parties when a loss mitigation option is analyzed and decisioned,” Williamson said. Utilizing APIs allows the flow of information to occur faster and in a more secure and consistent manner between the borrower and the servicer. “For example, Fannie Mae’s Servicing Management Default Underwriter platform provides a streamlined experience for servicers to assist a borrower in an early stage of delinquency through loss mitigation or to an eventual liquidation.” Just as technology is being utilized in originations to provide a more streamlined experience, Williamson added that servicers can leverage asset and data validation services “to automate documentation requirements and to help qualify borrowers for certain loss mitigation options.”

Hughes also stressed the importance of implementing user-friendly mobile applications and optimized sites; offering the ability for borrowers to contact their servicer after normal business hours thanks to advanced chatbots and intuitive FAQs; and providing helpful multimedia resource libraries for borrowers to reference.

“At the end of the day, most people want to keep their home, and it’s when they feel like they’ve lost hope that they take alternative steps,” Brousseau said. While automation can be helpful, he told DS News that technological innovation should be focused on making it easier for the borrower to communicate.

MORE THAN JUST A NUMBER

Williamson told DS News that, while “servicers have made great strides with high touch protocols and single points of contact structures,” creating a positive experience for the borrower often comes down to the basics of customer service. “Courtesy, respect, and a desire to exceed the borrower’s expectations in resolving his/her inquiry are still the foundational tools to ensure borrowers get a terrific experience,” Williamson said.

“It’s critical that you hire those who share your customer service philosophy, including empathetic, energetic, and outgoing behavioral traits,” Hughes said. He recommended using tools such as the Myers-Briggs Type Indicator personality test to ensure that “you’re putting the right people in the right seats, with the right tools.”

It’s not enough just to hire the right people, of course. Beyond the hiring process, servicers must provide their teams with the proper training and tools to ensure they can do their jobs properly.

“The best training is on-the-job training with the customers,” Thompson said. “We frequently talk about how our obligation to the customer goes through the roof during default, because you’re dealing with people in the most sensitive time periods in their lives.”

To navigate those stormy seas, Thompson explained that Flagstar utilizes a team of escalation specialists who are “our most trained, most sensitive agents.” These agents are experts in loss mitigation, trained to help guide
the borrower through their options. Thompson told DS News that the average tenure for their collections team is seven and a half years—a long time to spend your days interacting with people who are struggling and stressed.

“It is not easy work, being on the front line of default, and that’s what a person on the phone is,” Thompson said. “We try to create an environment that has as much flexibility as possible to support the agents, and their families.” Thompson added that Flagstar also provides opportunities for collections agents to grow their career within the bank, beyond the collections department. Aside from the loyalty instilled by having a visible career growth path, Thompson said there is another clear advantage to having these employees move up and outward into other parts of the company’s servicing structure.

“They know how to use the servicing system better than any other person,” Thompson said. “It’s hard to find people who can navigate the servicing system, while speaking with customers on the phone, collecting payments, and educating about servicing practices. We want to create opportunities for people with these skills sets.”

At every stage of the default process, Chappell emphasizes the importance of three things: 1) preparedness, 2) accuracy of information, and 3) and professionalism. Those three qualities working together in sync can make all the difference in how difficult the process feels to the borrower, and whether they feel respected and heard throughout it.

“Whenever those systems aren’t sharing information, or if they don’t have an accurate call history, it can make for an incredibly difficult and tense conversation with a consumer,” Chappell said. “With the amount of data and analytics that the servicers have available to them today, it’s critical to make sure that you’re calling the right consumer, for the right reason, at the right time, working toward the right objective.”

“The more tools you can give your reps in handling these types of communications, whether that’s how to deviate from a script when a certain question comes up or how you discuss these sensitive and personal circumstances that are impacting a borrower’s ability to pay, is incredibly important,” Connally said. While foreclosure volumes may have dwindled over the years, for the borrower on the other end of the phone or screen, their situation is every bit as frightening and stressful as anything from the peak of the financial crisis. “Servicers need to maintain the level of outreach they do in the early default stages,” Connally advised, “because if you can talk them through the available options, it might lead to a better result than going through the foreclosure process.”

“If your employees create an environment where borrowers are afraid to pick up the phone and answer it because they’re going to be berated, they aren’t going to engage you,” Brousseau said. “When people fall on hard times, if they don’t see a way out, sometimes it’s easy for them to come to the conclusion that it’s time to just walk and start over again. The factor determining whether that happens could very well be that last conversation they had with their servicer.”

For Carrington, Brousseau said ensuring those communications unfold in positive ways usually comes down to simple training. Carrington operates its borrower communications in this arena out of a command center in Westfield, Indiana, centralizing the network rather than scattering
call centers around the country.

“They’re in one location, all supervised by the same group,” Brousseau said. New-hire training at the facility focuses on the basics of telephone etiquette and familiarizing the staff with the entire loan process from stem to stern. Brousseau receives a weekly report of each employee’s training regimen, and he revealed that falling behind on this training can impact the employees’ compensation levels.

“We take the training very seriously,” Brousseau said.

On the other end of the spectrum, Brousseau said that Carrington also works hard to provide positive recognition for employees who excel, especially those who receive high marks from the borrowers they have worked with.

“We make a big deal about them doing the right thing for the client, and we create an environment where people feel good about that, and it kind of perpetuates itself.”

About Author: David Wharton

David Wharton, Managing Editor at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has over 15 years of experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. Wharton and his family currently reside in Arlington, Texas. He can be reached at David.Wharton@theMReport.com.
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