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Thriving in a Low-Delinquency Environment

Editor's Note: This feature originally appeared in the July issue of DS News.

As First VP, Default Servicing Operations, Flagstar Bank, Courtney Thompson is responsible for all consumer default assets at Flagstar, including the default call center and the design and operation of the bank’s default servicing oversight model. Her role also encompasses management of the specialty servicing vendor partners who perform the front-line servicing for each of the functional areas of default (loss mitigation, foreclosure, bankruptcy, and REO), as well as Flagstar’s cross-functional oversight team.

During the Legal League 100 Spring Servicer Summit, Thompson sat down with DS News to discuss streamlining communications with borrowers, navigating compliance, and how Flagstar has evolved to thrive in a lower-delinquency environment.

How has Flagstar shifted its focus to adjust to lower rates of delinquency post-crisis?

Flagstar used the reduction in default volume to redevelop its data environment, with the goal of bringing ultimate transparency to its performance across all channels of default. All of this has been about positioning the company as a best-in-class servicing provider, and from a default perspective, to be ready for the next market dip. We know it is coming, the question is when. Our market advantage is that we don’t just say, “We’re ready”—we can show you. Our subservicing clients have the peace of mind that we know where every loan is—even at the “Mr. Jones” level.

We have a deep confidence in our abilities and are comfortable with what is possible in the current market. We believe in our service, and we are able to have confident conversations about any performance expectation, whether compliance- or performance-based because we simply do not believe there is a better offering. A key challenge in the default space now is whether we can, as an industry, scale up to service loans when called upon because, from servicers to attorney firms, we've all had to scale way back.

It's great to have transparency, but if every metric is being missed because you weren’t prepared for increased volume, it doesn't matter. Having the staff, infrastructure, and technological efficiencies to handle volume with peak performance is what matters.

As interim head of the Bureau of Consumer Financial Protection (BCFP, formerly known as the Consumer Financial Protection Bureau), Mick Mulvaney has been vocal that he is looking to revamp the Bureau’s approach to regulation enforcement. Is it challenging for servicers not to know what may be coming down the pipeline?

The organization I work for has a deep commitment to following the rules. So much so that they hired a consumer financial protection attorney to manage default—that's what I do. These days, compliance needs to be just blocking and tackling. If you can’t operate by the strict letter of the law—and we conservatively interpret the law—you shouldn't be in this business.

We're happy to operate in an environment where we can look at asset performance and be more aggressive with collection strategies, but at the same time, there’s always a balance with our commitment to compliance. By way of example, we recently redesigned our collectors' incentive program. Our collectors do not get paid extra for a compliant phone call. Instead, they autofail if they don't follow the rules, earning zero incentive for the month. We incent actual collections activities, particularly those that return borrowers to a performing status.

That's Flagstar’s perspective, and it’s not changing regardless of the clout the BCFP may or may not have, the party in office, or any other factors.

As part of your presentation at the Legal League 100 Servicer Summit, you mentioned technologies Flagstar was developing with the Federal Emergency Management Administration (FEMA). Can you tell us more about that?

To stay ahead of the game and ensure that we can quickly and safely scale our servicing offering, we are looking to pilot AI, especially for processes where there is a lot of work to be done, but not a lot of human judgment required. When we reacted to last year’s natural disasters, we had to bring extra people into the bank to help us manage the response. However, in the future, this could be fully automated through AI with data derived from public systems and inputs that we can create in Flagstar’s systems. We are evaluating different service providers that can help us set that up.

Flagstar has always had a robust process for managing disasters, including daily monitoring of the FEMA website, but when you're talking about the volume of customers and locations that were impacted last year, that presents a large-scale challenge. Moreover, the types of problems our customers have in these environments are loan-level stories— there is not a one-size-fits-all solution. In the past, with large-scale disasters like Hurricanes Katrina and Sandy, servicers were managing major disasters impacting single locales, where total loss of the property was a consistent event. Last year, we dealt with mudslides and wildfires in California, as well as hurricanes in Texas, Florida, the Virgin Islands, and Puerto Rico. Because of the nature of these disasters and their breadth across the country, the impact to borrowers, and the borrowers’ needs within those circumstances were diverse.

From a servicing management perspective, we believe that we can automate the interface between the publicly available information regarding FEMA-declared counties and the data conversion to ZIP codes for proper identification of impacted customers in our servicing system. It's not hard, but someone has to do it, so if you can have the right technology do the flipping and thinking for you, as well as documenting it in your system, you can then have one person who makes sure that the data is correct instead of three or more people running daily processes.

Another challenge we are looking to address is that of consistency. For example, even if all counties in a given state are declared disaster areas requiring protection, these declarations do not always occur on the same day. Often times, there are a handful of counties that are declared each day.

In this environment, managing meaningful outreach campaigns, meaningful borrower assistance strategies, and meaningful property preservation efforts can quickly become demanding.

What were other initiatives spurred by last year’s disasters?

At Flagstar, our internal stakeholders really, really care. However, in our efforts and zeal to assist our customers, we can sometimes overlap. For example, we try to be cognizant of our different call campaigns designed to accomplish specific goals, without overwhelming the customer. One team may be calling a group of customers about one matter—for example, the safety of the customer and the status and condition of the property—while another team reaches out to a similar group for a different reason, such as more permanent solutions to economic hardship associated with the disaster itself. It's essential to plan a waterfall of communications based on the geographic location of the borrower, the condition of the property, performance at the loan level, and borrower connectivity with the servicer.

Flagstar is not just a mortgage servicer; we have three primary lines of business (community banking, mortgage banking, and servicing). Just because we have servicing customers impacted, that doesn’t mean we don’t also have customers affected under the broader umbrella. A question we had to answer was how do we communicate across all business channels to make sure things are okay with our customers? We try very hard to make sure that the left hand does know what the right hand is doing.

The most important response we developed in reaction to last year’s hurricane season is the enhanced integration of our customer service department, marketing department, and default department, so that borrower communication is clear and consistent.

Moving forward, there will be a streamlined approach to when it’s best to text borrowers, for example, rather than to email them. When should informational postcards go out? What is the appropriate solicitation tiering for agency loss mitigation offerings? One of the things that gets overlooked after a disaster is that people often aren't in their homes—even if I sent you a care package, if you're not there to receive it, it doesn't matter.

We’re working on enhancing that sensitivity and being able to track loans in a way where you know important facts, such as that this is a customer who was impacted 28 days ago, and having conversations that reflect that knowledge.

If you lost your home today in a disaster, you wouldn’t yet know what you're going to do. You wouldn’t know what your intention was for the property. There's zero value in my asking you on day one, "What's your plan?" We want to create alternative forms of communication that allow us to get in touch with our customers in a compassionate manner.

What is one thing you wish more people understood about what you do?

To some, the perception of default mortgage servicing is that we make a living repossessing people’s homes. In actuality, we are here to prevent that from occurring by all means possible. At the heart of our organization is deep care and respect for ensuring the homeowners going through the process are treated with dignity and respect—all within the confines of the underlying rule environment.

We're here to facilitate potentially the most challenging time in another person's life, and we want to do that with as much care as humanly possible—whether that means communicating with borrowers in a clear and concise way on a piece of paper about what's happening with their loan or assigning a well-trained, dedicated agent to assist a borrower through a difficult process.

About Author: David Wharton

David Wharton, Editor-in-Chief 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 nearly 20 years' 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. He can be reached at [email protected].

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