REQUIRED READING: Suppose for a moment that Henry Ford had to deliver 100 automobiles – all different models and with different features – in one month, yet 90% of his workforce had never picked up a wrench. Sounds ridiculous, right?
Yet a similar scenario is taking place in today's distressed-property market, where a massive amount of loss mitigation tasks, short sales and real estate owned properties (REOs) are being handled by a mostly inexperienced workforce, with no one file being the same. But for mortgage servicers and investors, the biggest problem is not their workers' lack of experience. Rather, it is the lack of workflow management.
For the purposes of discussion, let's define workflow management as a system of managing the people, information and tasks as they move down a prearranged path toward a common goal. Good workflow management does this quickly and efficiently, using the best people and technology in the most cost-efficient manner possible.
But while the concepts of workflow and workflow management are familiar and relatively mature in the origination side of the mortgage business, they are drastically underdeveloped on the servicing side of the industry. In truth, the workflow systems of most servicers lack automation, are overly burdened with paperwork and provide few tools to guide newly or recently hired counselors through the default transaction process.
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This problem is perhaps most apparent in the area of short sales. Servicers are overwhelmed with troubled borrowers who are underwater on their loans and trying desperately to resurface. Many of these borrowers are barely employed or underemployed and are anxious for a buyer to come along with an offer the lender will accept.
One would think servicers would be jumping on this problem and pushing through as many short sales as possible in order recoup some value from the distressed property. However, short sales are complex transactions that require the participation of servicers, appraisers, borrowers, buyers, real estate brokers and agents, title agencies and sometimes, mortgage insurance firms and second-lien holders.
Talk to any real estate broker with expertise in the short-sale market, and you will hear story after story about how servicers have lost their short-sale packages or have taken months to respond to them, long after once-serious buyers have moved on to other properties for sale. Because of poor workflow management, or the sheer lack of a workflow plan altogether, the vast majority of short sales fail simply because time runs out.
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Likewise, in the REO market, servicers, investors and asset managers that try to sell a property in the open market after it fails to sell at a foreclosure auction will find themselves ill-equipped to sell these properties expediently and unlikely to generate a fair price for these assets. There are so many REO properties that often very little marketing effort goes into selling them, which results in properties languishing for months or even years, and falling further and further into disrepair. Similar to the servicing industry, most investors lack workflow solutions that enable them to field bids and offers and coordinate sales among multiple parties, and making them incapable of scaling their operations to handle REO volume.
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If you talk to both servicers and investors, they may tell you that they do have workflows in place for handling short sales and REOs, but the volume of these properties is too much to handle. They may even blame the inexperience of their staff, even though enhanced workflow systems are able to guide even the most novice operator or counselor through default transactions so that they are able to complete assignments on time.
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How can you tell if your workflow plan is good enough? If your operations possess any of the following factors, it's a sure sign that your workflow management needs major work:
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Too much paper. Perhaps the biggest source of waste in the default management process lies in the amount of time servicers spend chasing, collecting and passing along paper documents. Paper is not just tremendously inefficient (and environmentally unfriendly); it's also more costly to prepare and process, and relevant documents seem nearly impossible to keep in a central repository where anyone can find them when they are needed. An over-dependence on paper documents also increases the chances of critical information being lost or misplaced, which can add just enough time and frustration to distressed-property transactions to cause would-be buyers to look elsewhere.
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"It's that person's fault." Today's servicers and investors have struggled to track processes associated with managing transactions because they have no central platform to convey the status of a particular file, and no way for everyone to know what everyone else is doing. This situation is magnified if there is no process consistency between one transaction and the next. In fact, the one possible upside to poor workflow management is that it makes it very easy to point fingers when a prospective deal falls apart.
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Major phone bills. If your workforce is spending all day returning calls to borrowers, real estate agents, title companies and colleagues, something's wrong. The telephone is particularly inefficient when it comes to documenting communication among various parties, and it can make the collection of required documents from borrowers – such as tax returns, bank statements, W2s, hardship letters, and listing and purchase agreements – a muddled and frustrating affair. And when more than one person from the servicer gets involved in the phone and fax melee, the confusion is usually multiplied.
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So what are the qualities of enhanced workflow? At the very top of the list is automation. Servicers with enhanced workflow management use technology wherever possible to reduce manual tasks or eliminate them altogether. This can be accomplished today with a comprehensive, enterprise-class technology workflow platform that automates repetitive key tasks in default transactions. When the status of a default file changes, an e-mail is automatically generated and sent to all parties involved with the file. When a request comes in for a short sale, a valuation order is automatically generated and retrieved on the property. When deadlines approach, notifications are automatically sent to the responsible parties.
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In short, if a task can be automated, it is. With automation, workflow becomes more efficient, and transaction speed increases. This sets up servicers to multiply the number of default transactions they can perform in a given day, week or month, which looks a lot better on a company's bottom line.
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Another key component of enhanced workflow management is transparency. Everyone involved in the workflow knows the exact status of a given file at any point in the process. This greatly reduces the amount of unnecessary borrower, investor and internal communication that usually slows down the entire process. A transparent workflow platform eliminates needless phone calls and faxes by automatically communicating the status of a loan file to multiple users.
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All documents and exhibits are captured and visible to all parties, so the servicing manager and customer service representatives aren't chasing down information at the last minute. Transparency allows managers to understand their enterprise, to see who is doing what and how they're doing it, and even more importantly, where the bottlenecks are. Transparency also removes the majority of barriers that keep tasks from being finished on time. Suddenly, everyone in the workflow pipeline is accountable to everyone else, and everyone has the tools to complete their tasks quickly and efficiently.
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Finally, enhanced workflow management should provide assurance that every default transaction meets all relevant state and federal regulations. When workflow is perfected, the ever-important compliance question is answered automatically.
The workflow platform will have built-in processes that ensure compliance with national foreclosure guidelines and state regulations based on the location of the property and the borrower's scenario. Being able to check files against an electronic library of regulations that covers all 50 states as well as Fannie Mae, Freddie Mac and Real Estate Settlement Procedures Act requirements can eliminate countless hours normally spent ensuring compliance – and provide better accuracy, too.
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The crux of enhanced workflow management is being able to process files better, faster and with lower costs. Once workflow is transformed so that transactions become a repeatable, consistent process, a servicer's operations can be scaled to whatever levels volume demands. The same system that can handle 10 short sales in one week can just as easily handle 100, which opens the door to increased asset recovery and fewer losses to foreclosures.
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The challenges of handling any default process or transaction can actually be solved with existing technology. It is possible today for servicers and investors to capture a "single source of truth" for all documents and supporting materials in a centralized location, provide transparency to all parties involved in the transaction and streamline the process by removing redundant and manual tasks. Servicers, for example, are able to collect and view all activities associated with a single loan file – all documents, exhibits and supporting material – including when and why it happened.
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A century ago, Henry Ford and the Ford Motor Co. solved their production challenges by revising the assembly-line concept and applying it to auto manufacturing. In the 1990s, automated underwriting had a similar transformational effect on the mortgage industry by taking an otherwise complicated process and boiling it down to its essential tasks, making underwriting faster and more efficient. We have a great opportunity today to apply this level of innovation to default management workflows.
Joe Filoseta is president and CEO of Bellevue, Wash.-based DepotPoint, a provider of default management technology. He can be reached at (425) 278-2995 or joe.filoseta@depotpoint.com.
