REQUIRED READING: A regulatory earthquake seeking to reform how servicers treat delinquent borrowers is not just making waves in the mortgage world; it is tantamount to a tsunami.
To comply with a requirement that they establish a single point of contact (SPOC) for any borrower seeking to avoid foreclosure, mortgage servicers will have to completely overhaul their contact centers. Following the rules does not come cheap. Shifting from a pooled resource platform to a SPOC model could cost servicers billions of dollars in additional staff and technology.
In 2010, foreclosure filings in the U.S. hit an all-time high of 2.9 million, and experts anticipate seeing another 8 million to 10 million homes heading toward foreclosure in the near future. As borrowers struggle to hold on to their homes in a still-fragile economy that is glacially slow to rebound, regulatory agencies are scrambling to come up with solutions that will lessen the bleed, serving as a tourniquet of sorts against default and foreclosure.
The result has been a slew of programs, guidelines and regulations covering everything from mandatory forbearance plans and modifications to accelerated outreach and the latest mandate: SPOC. While the intentions – to lessen borrower confusion and improve customer service and performance in foreclosure-prevention programs – are good, the reality is that SPOC is causing more consternation than it is confidence.
Under the SPOC directive, servicers must assign a single relationship manager for each borrower who is applying for assistance through the Home Affordable Modification Program (HAMP) or other foreclosure-prevention options. The relationship manager must be a full-time employee – not a contractor – and will be responsible for working with the designated borrower throughout the entire evaluation and modification process. This includes contact with the consumer, coordination with other servicer employees and handling of all relevant documents.
In addition to the SPOC requirements from the supervising agencies, Fannie Mae and Freddie Mac have also modified their servicing guidelines to strongly encourage their servicers to implement SPOC, even if they are not yet required to by regulation or law.
Crunching the numbers
Given that servicers are not traditionally in the business of changing the terms of a loan and have already had to take on additional caseload under Making Home Affordable (MHA) and HAMP, SPOC cannot be expected to be welcomed with open arms. Add on the financial burdens of a new contact-center model, additional headcount in the thousands, with a looming deadline of November, and the industry is looking at some serious strain on the process.
Today, most servicers use predictive dialing systems to make the large number of outbound calls required to manage loans in default. When introduced in the mid-1980s, predictive dialers revolutionized the collections contact center. Similar to its inbound call-processing cousin, the automatic call distributor (ACD), a predictive dialer relies on the ability to connect any answered outbound call to an available collector as it dials out over multiple lines simultaneously. Using sophisticated algorithms to predict how many calls should be made to keep all agents busy, predictive dialers increased agent productivity by 200% or more over manual dialing and soon became standard operating equipment for collections units.
However, predictive dialers also removed the direct relationship that existed between an individual mortgage collector and specific borrowers. The single relationship manager brings back that direct relationship, which may alleviate borrowers' pains, but at what cost to servicers?
Staffing up. The loss of efficiencies enabled by predictive dialers and ACDs operating in a pooled model could force servicers to increase their headcount by fivefold or more. Traditional staffing models for call centers average 300 to 500 accounts per agent. SPOC requires servicers to move to a "named account" model from this traditional pooled model. This reduces the number of accounts that agents can handle to about 75 to 100 customers. To make up for that gap, servicers will have to dramatically increase headcount.
For even just the top 35 servicers, this could mean adding nearly 30,000 new full-time employees to the financial tune of $7 billion over the next five years. Chase has already announced it will be adding 1,000 new servicing employees in Ohio alone, and it is likely that number will only continue to increase.
Skilled workforce and training. Gone is the freedom for agents in these contact centers to be the catch-all for calls. These new staff members cannot be just anyone. The relationship manager has to be fully versed in the MHA program requirements and timelines, as well as familiar with the loss mitigation processes and where his or her borrowers are in the process.
A wide range of intricate tasks will now fall on the relationship manager, including coordinating the maintenance and tracking of documents, communicating in a timely manner with the borrower, resolving delinquency or imminent default, coordinating with the borrower and in-house and third-party servicer personnel to promote compliance, and more. Meeting the need for this level of skilled staff will mean a large investment in time and money to find, recruit and train these employees to ensure they can manage the full loan modification cycle and educate borrowers during each step of the process.
Upgrading the infrastructure. Even if servicers have the right people in place, they may not have the ideal technology infrastructure to implement SPOC. As previously mentioned most servicers use ACD and predictive dialer systems, which were designed for efficiency rather than for personal customer service. Pooling loss mitigation agents and allowing them to handle any inbound or outbound contact will not meet SPOC requirements.
Furthermore, customer service and collections call centers traditionally handle routine borrower requests, while transferring callers seeking to avoid foreclosure to someone else better equipped to handle the situation. This means loss mitigation and foreclosures are typically processed separately, and records are maintained on different platforms.
As a result, frontline agents do not always have access to account information for customers in loss mitigation. Once an account is assigned to a specific relationship manager, servicers are likely to struggle to use their existing systems to deliver the volume of communications required to work through the modification process.
Reducing the burden with technology
Tackling a business transformation of SPOC's magnitude is daunting, even for loss mitigation specialists. In some cases, servicers are talking about quintupling the amount of headcount needed to handle the caseload volume under the individual-assignment model. Top that with the fact that there is still a large number of nonperforming loans that need loss mitigation.
Much of the burden of SPOC could be alleviated through automation. The good news is that the market is catching on. Many financial institutions are beginning to include personalized automated communications in their collections and customer-care strategies, as well as offering self-service options through alternative channels, such as text messaging, email and smart-phone applications.
This same technology could easily be extended to the loss mitigation process, automating a significant portion of outbound calls and reducing the volume of inbound calls. Additional features, such as customer segmentation, can also make the process of connecting borrowers with their respective relationship manager much simpler, faster and more efficient. Plus, because these solutions can operate in the cloud, they are more budget-friendly and faster to implement than are costly infrastructure upgrades and additional staff hiring and training.
For instance, many of the required outbound calls are made either to provide the borrower with status updates or to request documentation. These types of calls do not necessarily require a conversation with the relationship manager. By automating these calls, borrowers get the information they need, and relationship managers can focus on the inbound calls that are still coming in directly from the borrowers or on transfers from an outbound message where the borrower opted for further assistance.
If self-service options are integrated early on in the process, they can also generate a better experience for the borrower, because they remove the barrier of the unknown. Most borrowers are unfamiliar with the loss mitigation process. This unfamiliarity steers them toward over-communication, and they constantly call in because they are stressed over the possibility of losing their home. They want reassurance. Automating the routine communications required to move the process forward gets the borrower comfortable with the process and lowers the inbound call rate.
By proactively and repetitively reaching out to customers to provide the critical information they need on the status of the loans and on missing or incomplete documentation, servicers eliminate the need for borrowers to call their relationship manager directly – providing more bandwidth for handling calls from borrowers who need more specialized attention or who are further along in the process.
These automated services gather valuable data regarding customer preferences and behaviors, which increases the likelihood that the customers will get the information they need and respond promptly if requested, which ultimately reduces the risk that they will default on the loan. Being able to track and capture the history of customer interactions also provides more complete reporting and auditing, helping to meet compliance requirements.
There is no doubt that mortgage servicers face a daunting task of complying with the new SPOC regulations. However, if servicers are able to quantify the impact to their business and augment their existing process with an automated technology solution that makes compliance simpler and easier, SPOC could succeed in becoming an asset to servicers rather than a liability, reducing default rates, boosting customer satisfaction and saving servicers money in the long run.
Chris Carlisle is director of mortgage solutions for Varolii, a Seattle-based provider of business-to-consumer, automated text messaging, interactive voice mail and email communications. He previously managed collections call centers and default operations departments at Capstead Mortgage and GMAC Mortgage. Carlisle can be contacted at email@example.com or (972) 632-0151.