The loan modification process needs a reboot that uses technology to help borrowers understand the process and provide faster resolution to loan files, according to panelists speaking at the Best Practices in Loss Mitigation Conference that National Mortgage News' parent company SourceMedia sponsored this week in Dallas.
Borrowers don’t understand the loan modification process, said Sapan Bafna, senior director of the CoreLogic subsidiary Solutions Express. The housing crisis may be the one and only time these borrowers ever do a loan mod and servicers have to help them navigate the process. Wei Li, senior researcher at the Center for Responsible Lending, agreed and called for a clear, national standard for servicing and loss mitigation.
The new single point of contact requirements are a step in the right direction, but need a portal to help borrowers keep in touch with their servicers and to upload documents. Portals like the Hope LoanPort allow for two-way communication and let borrowers and housing counselors upload documents that are electronically stored in servicers’ databases. But Bafna warned the SPOC requirement is addressing a symptom, not the root problem with loan modifications.
“All the efforts put into making decisions are now going into implementing this,” he said. The real problem is, once the servicer receives all the documentation and information to make a decision, it isn’t making it fast enough. And when a borrower doesn’t qualify for one program, Bafna said servicers should look to technology to help streamline the process from considering a borrower for one program to the next.
Having a defined progression of options will help borrowers and counselors see the process moving forward. From a technological standpoint, Bafna said a “waterfall of waterfalls” should begin with the Home Affordable Modification Program (HAMP), where the servicer should collect all the information needed to consider the borrower for other options as well. If the borrower can’t qualify for HAMP, the “simultaneous decisioning” process uses automated workflows to immediately begin considering the borrower for another program until a workout is reached or all options are exhausted.
Wei agreed that technology and automated workflows can help standardize the loss mitigation process. “With money and technology we'll transform this industry,” he said. If servicers incorporated more automation in their loss mitigation efforts, the business environment would become more predictable and enable investors to make better decisions to help distressed borrowers.
“They call this industry high touch, but it's really about information...and based on that information make key decisions,” Wei said.
While some servicers may be reluctant to invest in technology because they see the foreclosure crisis as a short-term problem, Bafna said that perspective is short-sighted. Modifications completed in the early days of HAMP will be reset in just a few more years, some increasing payments by 24%.
“How many of us think our salaries are going to increase 24% in the next four years?” Bafna asked.
Wei added that investment in sound loss mitigation technology now can help prepare servicers for a future housing crisis.
“I'm quite optimistic on that side,” he said. “The foreclosure crisis was like a 100-year flood. Nobody was prepared. But the investment going on right now and the standards being created now will help us for the next response.”
“We will be ready with a quick and fast response,” he added.