eek, Fiserv's Greg Fontenot offers servicers practical advice on handling volume. As assistant vice president of the tech company's loan servicing division, Fontenot is responsible for Fiserv's default product line. [b]Q:[/b] What are your thoughts on the government's foreclosure prevention initiatives to date? [b]Greg Fontenot:[/b] Foreclosure prevention has always been a goal of the industry, as no one wins in a foreclosure situation. For years, Fannie Mae and Freddie Mac have had programs to measure and mitigate risk and provide the best options for homeowners. They required the gathering of borrowers' financial information to re-underwrite a loan and come up with the best option. And the success rates for these workouts were good, as evidenced by the historically low GSE default data. Now, the scale of the problem is much larger, but the fundamental fact-gathering and the analysis remains the same. The challenge is to evaluate a multitude of defaulted loans, one loan at a time. Uniformity in the process provides for consistency in the qualification process. In the end, the percentage of successful modifications will remain in line with historic numbers, because the underlying reasons for default don't change – unemployment/under-employment being number one. It's possible that loss mitigation agents will have to do more borrower counseling. An eight-minute call a few years ago may require longer customer interaction now. The success of the outcome is even more critical. The good news with the required underwriting in this program is that the loans that get approved have a good chance of performing at acceptable risk levels. [b]Q:[/b] Do you think the administration's inclusion of second-lien modification/extinguishment incentives in Making Home Affordable will suitably address that particular roadblock? [b]Fontenot:[/b] In situations where the first and second liens are serviced by the same institution, they already have the incentive to look at the entire borrower relationship and come up with the proper debt service plan. I don't see many more saves coming under this scenario. Where a second lien is held by another entity, the incentives may help, as getting something is better than the alternative. However, since the second-lien program is voluntary, it will not delay any modification efforts for first mortgages. I'm skeptical that they will make a material difference in the overall numbers. [b]Q:[/b] The Making Home Affordable program undoubtedly adds uniformity to the loan modification process, but are the program's guidelines appropriate? [b]Fontenot:[/b] The guidelines are in place to promote an affordable modification for owner-occupied properties. The 31% [debt-to-income] ratio is appropriate to promote a sustainable payment. The old underwriting percentages of 28/36 worked well, and I believe this will, too. [b]Q:[/b] Is the standard waterfall a correct framework for large-scale modification efforts? [b]Fontenot:[/b] Large-scale modification efforts still require solving problems one loan at a time, just as they were originated one at a time. The standard waterfall logic just makes it a uniform process. There are only a few ways to reduce an amortized payment. What's interesting about the [Home Affordable Modification program], versus the [the GSEs' Streamlined Modification Program (SMP)] that was announced in late 2008, is that the SMP protected the interest rate by first extending the term. I haven't heard any discussion around deferring fees and costs instead of capitalizing as the first piece of the waterfall logic. In the end, many of these capitalized expenses get deferred anyway. [b]Q:[/b] How would you characterize the challenges found in administering the government's program? How difficult is it for servicers to comply with the program's many details? [b]Fontenot:[/b] Volume is the main challenge, as workflow processes change when high volume kicks in. So now, the difficult part is to coordinate more parts, paper and data sources. Workflow technology can solve the processing requirements. The immediate challenge is to keep up with the revisions to the program, adjust processes and train staff. Weak system integration is a challenge that some servicers are struggling to overcome relative to the changes. Having integrated default management tools within the servicing platform allows the financial institution to track and study the loans being modified, regardless of which program. With this knowledge, they can formulate best-option workout scenarios based on operational business rules while still meeting the program guidelines. [b]Q:[/b] What do you recommend to servicing shops that are struggling to keep up with huge workloads? [b]Fontenot:[/b] Servicers will have to start embracing a 360-degree, customer-centric approach. Having the right workflow technology may prove to be one of the first steps. Because the program requires more customer contact and document gathering, outsourcing pieces of the process will also assist with the workload demands. [b]Q:[/b] What do you anticipate the legislative landscape will look like in the months ahead as it relates to mortgage servicing? [b]Fontenot:[/b] As well-intentioned as President Obama's plan is, home retention will not always be possible, or even the best option. With rising unemployment rates and home values that continue to fall, some loss mitigation efforts are bound to fail. Some distressed loans don't go away, and the servicer must still provide escrow, investor reporting and a whole host of activities. Legislators will have to be open-minded about adjustments that may be necessary to ensure success for all par
