Since the government’s moratorium expired, our data show that foreclosures have continued to trend upward slowly, although they have remained 50% below pre-pandemic levels during the first half of this year.
Mortgage lenders and servicers are likely working on a surfeit of pre-pandemic foreclosures, with some having already found their way back to making regular mortgage payments. As a result, banks and non-bank lenders are focused on loss mitigation.
When borrowers make or miss a payment, their calls usually come through to a loan servicer rather than the lender itself. The servicer must therefore act as an extension of the lender’s business with two main objectives: deliver effective customer care and mitigate loss.
Loss mitigation starts with opening a line of communication and helping borrowers understand their available options as well as the short and long-term impact of their decisions.
Early and frequent communications through text, phone, video and email increase reinstatements and deferrals while counteracting defaults. By sending information and engaging with borrowers frequently, they can take time to review their options and make informed decisions about repayment, loan term extensions, payment deferrals or loan modifications without feeling rushed.
As a result of ongoing borrower engagement, monthly mortgage payments are more likely to be paid promptly and also increase the chance of resolving payment challenges. As with any good relationship, it starts with communication.
Borrowers with simple requests such as such as statements, confirmation of payments or address changes are now more likely than ever to engage through electronic means such as interactive voice response (IVR) call systems, dedicated company web sites, online chat and SMS texts rather than speaking with a customer care representative on the phone. This trend accelerated during the pandemic. As a result, call center staff members are able to focus on borrowers with complicated matters.
Training is critical
Training customer care is a critical element for loan servicing and loss mitigation. Skilled, empathic agents aligning borrowers with the correct solution, enabling more borrowers to retain homeownership or, when it’s the best outcome, helping them exit their home.
Loan servicers need the right training tools. Empathy cannot be taught, but understanding the specific events that led to borrower distress can help call center staff members become more sensitive and thoughtful. For example, during hurricane season, call agents may not have experienced that particular type of natural disaster or the aftermath, such as with Hurricane Ida or Superstorm Sandy. However, they can better understand the effects on borrowers by being briefed on the impact of such events.
In the case of the pandemic, everyone was affected. It was important for customer care to receive up‑to-date information on Federal mortgage relief programs so that they could communicate correctly with borrowers. The programs were often changed or adapted during the pandemic, which resulted in a constant flow of information to customer care and borrowers.
Predictive analytics identifies high-risk groups
Predictive analytics provide insight into customer situations for loan servicing, especially for default servicing. It helps mortgage servicers anticipate what might come next and the type of engagement required. For example, identifying high-risk defaults can help lenders and servicers present the best choices to this group of borrowers. The objective is to convert this ‘at risk’ group of borrowers with some challenges in making loan payments to establish a payment routine, even if it means a slightly smaller monthly amount.
Predictive analytics minimize the need for ‘manual’ reviews and analysis for each loan application, leaving customer care employees to focus on building a relationship by bringing in the ‘human element’. Sympathy, compassion and understanding can be as important when borrowers face difficult circumstances.
Borrowers in a complex or difficult situation often disengage before they understand their options. These borrowers often face default as a result of financial hardship. Constant engagement is a highly effective tool for loss mitigation.
In short, the key to loss mitigation is a combination of making use of highly sophisticated data trends and human empathy.
Tom Millon, CMB, is CEO of Computershare Loan Services US, Ponte Vedra Beach, Fla. Jeff Johnson is the company’s COO. This MBA NewsLink article is part of an occasional series on the New Normal in Real Estate Finance.