Contrary to popular belief, Henry Ford did not invent the assembly line, but he is credited with leveraging the process to revolutionize the auto manufacturing industry. Often cited as one of the most impactful innovations of the 20th Century, the assembly line was simply an elegant, simple way to inject increased efficiency into a complex, labor-intensive process–something the mortgage industry has sought to achieve for decades, though mainly for the origination process.
However, mortgage servicing–particularly loss mitigation–is equally in need of an infusion of efficiency and automation, which eSign and remote online notarization (RON) are uniquely positioned to deliver. Given the current economic and regulatory climate, now is the time for servicers to leverage these digital processes to streamline their operations and improve borrower service.
In January 2023, the CFPB and FHA both released updates to their loss mitigation procedures and made it clear that servicers were expected to offer loss mitigation options to all borrowers facing hardships, not just those experiencing COVID-19-related hardships. These announcements came as delinquencies steadily rose throughout the second half of 2022.
According to Black Knight’s most recent report, there was a 2.3% increase in delinquencies in December, driven primarily by newly delinquent borrowers as 30-day delinquencies rose 5.1%. While delinquencies did remain below pre-pandemic levels throughout most of 2022, the recent CFPB and FHA announcements can lead us to believe that delinquency numbers may continue to rise, and more borrowers will need to take advantage of loan modifications.
The tight economy already has servicers looking for ways to increase operational efficiencies, but as they face the potential of an increase in loss mitigation transactions, that need is more urgent. By implementing eSign and RON into loss mitigation transactions, servicers can quickly and electronically deliver a user-friendly package ready to be signed.
Currently, the average turn time for an error-free loss mitigation transaction is 21 days. But how often is a transaction completely error-free? With paper packages, errors can only be fixed after re-printing and re-shipping the package and then waiting on the borrower. An error in an eSigned transaction can be fixed the same day it’s found, significantly reducing cycle time. Time is money, and with increasing interest rates and rising carry costs, it’s even more critical now to be as efficient as possible.
Let’s review a recent case study–by using RON on loan modification transactions, a servicer reduced the average cycle time from 21 days down to seven days. Using an average unpaid principal balance (UPB) of $250,000 and an average carry cost of 5%, the per loan cost decreased from approximately $800 to roughly $300. On a 2,000-loan portfolio, that is a savings of $1 million.
The impact of operational improvements in turn times cannot be overstated, especially when considering the strict waterfall timelines servicers must adhere to in the loss mitigation process. In a process where every day and every dollar counts, condensing turn times from application to resolution provides tremendous benefits for servicers and borrowers alike.
While lenders have been adding eSign capabilities to all stages of the origination process for years, implementing eSign and RON technology into the loss mitigation process would be a completely new experience for many new servicers. Luckily, borrowers have already embraced eSign technology, while Fannie Mae, Freddie Mac and Ginnie Mae all currently allow servicers to use eSign technology for loss mitigation transactions. As the CFPB and FHA highlight the need to support at-risk borrowers, the GSEs have made it easier for mortgage servicers to provide borrowers with quick and convenient access to loss mitigation solutions.
The arguments for going digital are the same ones used in similar situations for years: the borrowers are already used to conducting business online, no one has to leave their house or office, it’s easier to catch and fix errors, it’s better for compliance, etc. But as the mortgage industry faces rising delinquencies and an expected increase in loss mitigation transactions, the main argument for eSign and RON is that of the assembly line: injecting increased efficiency into the process.