BLOG VIEW: Natural disasters around the world are occurring at an alarming rate. Every few weeks, we’re witnessing earthquakes that destroy cities, wildfires that burn thousands of acres and cyclones that cause mass flooding and property damage. The past few years were especially catastrophic for mortgage servicers because they had not adequately prepared. This resulted in much higher losses among servicers.
To determine whether they are truly disaster-ready, servicers need to evaluate their operations in the following five key areas:
Proactive Communication Plan
After a disaster, mortgage servicers have a duty to ensure that loan payments continue and that damaged collateral is appropriately remediated. At the same time, people with disaster-affected properties are going through one of the worst times in their lives. This is why effective communication and transparency are essential.
Establishing a communication plan prior to a disaster is absolutely crucial. If a servicer doesn’t have a clear, pre-established plan it could be in trouble. There needs to be clear communication between servicer and the homeowner at all times. A servicer should also have message points and FAQs ready so that it can react as soon as possible when disaster strikes.
Unfortunately, a majority of servicers scramble to come up with a communications plan at the last minute – and this usually leaves deadlines missed and borrowers frustrated.
The technology used to process claims needs to provide tracking capabilities, so that servicer and the homeowner can see exactly how the claims are progressing. Servicers that don’t have tracking technology are unable to see the status of claims, and therefore are unable to ensure repairs are being done.
In addition to tracking the status of the claims, tracking capabilities are important in showing homeowners the necessary documents required to process a check. Homeowners shouldn’t be left guessing whether or not a claim is approved. They should be able to easily tell which documents are needed, and whether or not they have been submitted.
The reality is that navigating insurance claims after a disaster is a complex process, with many opportunities for pitfalls along the way. One of those pitfalls includes failing to comply with regulatory guidelines, such as those by government-sponsored enterprises (GSEs). It can be easy to overlook documentation requirements during times when large volumes of borrowers need assistance, which is why automation is so important.
Automation makes it easy to stay compliant, reduces errors and increases productivity. Many servicers are still using manual processes, and are receiving fines levied by auditors as a result. Passing audits without issue is more likely when automated processes are implemented and utilized properly.
Because natural disasters are unpredictable, and the skills needed to deal with insurance-related issues may be concentrated in a few seasoned employees, servicers often find themselves shorthanded when disasters occur. Considering whether to increase staff to better serve customers is a very important consideration every servicer must make. When doing so it’s important to conduct an internal audit of one’s current staffing situation and ask the following questions: “Do we have enough staff? Are they the right staff? Do they know how to handle complex issues? Will additional education enable existing staff to do more?”
When panicked homeowners reach out via phone, they need help quickly. Anything more than a couple of minutes long feels like an eternity to most people. Seven to 10 minutes is appropriate, and anything beyond 30 minutes is unacceptable. Unfortunately, servicers that aren’t prepared will experience extremely high abandonment rates as call handle times are much longer when staff isn’t adequately trained. If a servicer’s abandonment rate for incoming phone calls is higher than 30%, it has a problem.
In order to properly handle disasters, a servicer needs a team that is dedicated and which can be solely focused on disasters. Many servicers try to cut costs by drafting employees from various departments and proclaiming them to be disaster recovery specialists when an incident occurs. These staff people often have limited knowledge of disaster recovery and their involvement in the disaster recovery process may actually do more harm than good to the reputation of the servicer.
The past two years has seen a series of devastating wildfires, floods and other terrible events that have cost the servicing industry millions of dollars.
Every year, servicers struggle to determine whether they are truly ready for the next big incident – but many of them don’t know where to look in order to improve their ability to respond.
By following a few simple guidelines, mortgage servicers can increase profitably when dealing with disasters while at the same time boosting borrower satisfaction.
Denis Brosnan is president and CEO of Dallas-based DIMONT, provider of specialty insurance and loan administration services for the residential and commercial financial industries.