Technology vendors will undoubtedly be pleased to hear that servicers are, by and large, satisfied with the functionality and performance of their core servicing platforms. It seems that the tools inherent in most systems have enabled servicing managers to administer their portfolios effectively and efficiently.
However, as we embark upon this discussion, a few caveats are worth considering. The companies that chimed in on this technology topic are largely A-paper servicers. While their portfolio sizes vary widely, respondents note that their delinquency, default and foreclosure rates have been flat, inched slightly upward or – perhaps surprisingly – gone down. Evidently, the prime world has not suffered a servicing downturn similar to what is being experienced in the nonprime space – not yet, at least.
For instance, Nancy A. Myers, senior director of loan servicing for Kentucky Housing Corp., says her company handles a $2 billion portfolio comprising approximately 30,000 loans.
‘Because we are a housing agency, we have a lot of strange little programs with a lot of strange little loans,’ she comments. These loans can be tricky and carry slightly higher delinquency rates, but they represent only a fraction of Kentucky Housing Corp.'s portfolio.
Myers notes that the vast majority of the mortgages she and her colleagues administer are A-paper firsts. Within this area of the portfolio, delinquency and default rates have been flat, and foreclosure rates have actually dropped.
‘We have a very aggressive loss mitigation program here,’ she adds, attributing the company's success in keeping foreclosures in check to its loss mitigation program – which is, in large part, fueled by its core servicing platform.
Kentucky Housing Corp.'s servicing system delivers functionality that helps Myers and servicing staff monitor and manage loss mitigation efforts. Fully populated borrower information, such as household budget data, enable the housing agency's representatives to work through forbearance agreements and interest-rate reductions. Additionally, the technologys foreclosure-tracking functionality is robust, she says.
Myers also notes that the system can generate myriad reports along the default-servicing spectrum. ‘We have found that to be an extremely valuable tool,’ she says, adding that her company's servicing platform features a number of standard reports, but is also packaged with a third-party report writer that Kentucky Housing Corp. leverages heavily.
Reports wanted
This kind of comprehensive report-writing capability is a commonly held necessity among a number of servicing managers. While A-paper servicers have not been deluged with high volumes of distressed loans, these companies are well aware that adjustable-rate mortgage (ARM) resets and overall economic conditions might converge to endanger their prime portfolios.
So, diligent servicers have been relying on their servicing platforms to deliver both micro-level and holistic illustrations of the loans in their portfolios – how they are performing today, and how they are likely to perform as the market changes.
America First Credit Union administers 9,400 loans in a $1 billion, A-paper portfolio. According to Rhea Schade, assistant manager, mortgage servicing, the company's servicing system creates very useful snapshots of individual foreclosure files that trace borrower-servicer interactions and mark critical foreclosure milestones.
But the system is less flexible from a holistic perspective, she says. Schade wants to be able to obtain a report that provides an overall look into all loans in foreclosure. America First Credit Union, she notes, is working with its technology vendor to fully leverage the system's reporting capabilities, as well as its bankruptcy tracking and reporting features – an area Myers would also like to see more thoroughly enhanced.
Alan Fuller, assistant manager, mortgage servicing, with ONE Washington Financial, is similarly concerned with a core servicing system's reporting capabilities. He notes that his company is also an A-paper servicer – administering a $1.2 billion portfolio comprising 9,500 loans – but acknowledges that today's healthy ARMs could conceivably turn sour. Reports help him and his staff prevent that eventuality, or at least minimize the fallout.
‘There are a number of canned reports that are already embedded in the program that help us stay on top of where the are numbers are from month to month,’ he says. Also, the platform enables Fuller to create customized report programs that deliver customized tracking and reporting results.
As ONE Washington Financial's technology provider expands its software offerings, the company expands its use of the platform, he adds. For instance, as Fuller has looked more closely into the system's functionality and implemented the updates, he has been able to assign specific collectors to specific loans, enhance note-keeping capabilities and create reports that identify loans that are in a particular stage of default servicing.
Going forward, Fuller hopes to see functionality that enables a notification feature in the system to flag, for instance, a borrower's first late payment. He anticipates that such a feature would necessitate very specific programming parameters – but admits that he has not investigated this kind of functionality with his technology vendor.
Workflow
Bob Smiley, the executive vice president at U.S. Bank Home Mortgage who oversees loan administration and master servicing, pointedly explains the kind of functionality he requires in a servicing platform: a ‘real-time workflow solution.’
The company administers approximately 930,000 loans in a $115 billion portfolio – almost entirely prime loans. In the past, its servicing platform has efficiently handled the core processing functions associated with the portfolio, and Smiley says the system has largely met his expectations. But again, as prime delinquencies loom, the technology bar must be set higher.
U.S. Bank Home Mortgage's system processes defaulted loans quite well, queuing to-do lists and keeping tight track of borrower data and the loss mitigation options that have been pursued.
‘Our loss mitigation efforts are hugely up,’ Smiley says. Because of this fact, he is cognizant of the areas where his servicing platform needs enhancement – namely, loss mitigation functionality that drives satisfactory outcomes with borrowers.
Workflow tools and exceptions-based processing functionality are the most valuable elements within a core platform, he notes. The technology powering routine servicing tasks – statements, payment processing, etc. – must run well, but the system must also have the capability to quickly access data related to defaulted loans, in real time.
Smiley also hopes that more intuitive loss mitigation programming will complement that streamlined data access: ‘a scripted interview that directs a counselor to obtain the appropriate information and ask the right questions, so the system – by itself – can take all that data and come to the right conclusion,’ he says. ‘A system where you can take a person who is generally intelligent and has good customer service skills and have that person consistently ask the right questions and come to a legitimate response, based on system rules.’
Tech answers
Of course, none of these concepts is foreign to technology vendors, and many have already enhanced their systems or are planning significant releases that will address servicers' issues. And while workflow depth and intelligent, intuitive loss mitigation functionality vary among product providers, all vendors have attended to the industry's call for robust reporting tools.
Financial Industry Computer Systems Inc. (FICS), which offers the Mortgage Servicer core platform, caters heavily to credit-union servicers. Dawn Gibbs, the company's president and CEO, says about 50% of its Mortgage Servicer customer base is composed of credit unions – and even these A-paper servicers have demanded high-level reporting functionality.
‘Overall, delinquency has not been a big problem for them,’ she says. However, ‘The requests that we get in our report-writing department run the gamut,’ she adds.
‘People are looking at more loans, and looking at them longer,’ comments Joe Dombrowski, who handles business development for Fiserv Lending Solutions. Although the company's MortgageServ-platform clients delinquency rates are ‘all over the spectrum’ – depending on the servicer and its product base – virtually all of its clients are interested in performing analytics to drill down into borrower files, as well as into full portfolios.
He says there has been a huge push for reporting and for implementing more predictive strategies: enabling borrower files to be extracted and married with third-party data to see where loans are positioned today and where they will be positioned in the future.
At the loan level, these analytics and reports seek to collect borrowers' payment histories and abilities to pay, property valuations, previous collections activities, the costs of various workout options and other elements. Once these components are assembled, the science behind loss mitigation – the data – is prepared, enabling staff to engage in the art of loss mitigation: Is a particular workout option a good risk for the servicer, based on what is known about the borrower and the loan?
Gibbs says most reporting can be handled via FICS' Eureka report writer, but the company is in the process of implementing Crystal Reports to further enhance servicers' reporting capabilities. The idea is to find ways to pull data out of the core system, so servicers can see what kinds of changes are taking place and identify trends.
According to Dombrowski, Fiserv offers ‘on-demand reporting,’ which he describes as a ‘report-object system,’ not just a reporting tool. On-demand reporting, he says, incorporates business objects, such as ‘small data sets that people can then massage further down the road’ – enabling servicers to monitor changes and evolve with trends in loans and portfolios.
Default functionality
Other technology vendors, such as Harland Financial Solutions and Fidelity National Information Services (FIS), have also refined their systems' reporting capabilities to meet servicers' demands. They have also worked closely with clients to ensure that they leverage every inherent element in those systems to streamline default servicing tasks.
Harland's INTERLINQ Loan Servicing (ILS) platform, for instance, handles all investor reporting requirements for Fannie Mae, Freddie Mac and other investors, and features thorough technology tools to coordinate loss mitigation. The company is planning an extensive spring release of ILS, in which it is revamping default processing to automate more of the system's features.
‘Delinquencies are going up, and [servicers] are faced with the challenge of getting as many loans worked out as possible and tracking the conditions of those loans,’ comments Susan Robinson, Harland's senior product strategist.
‘Obviously, with current market conditions, they're find that a little more challenging,’ adds Jackie Gerstung, Harland's vice president of sales. She notes that many of the enhancements destined for ILS' spring release were based on clients' feedback.
In fact, until these clients' delinquency rates began ratcheting higher, many were handling default servicing functions manually. Now, these same clients are looking for enhanced functionality with the core platform, as well as connectivity to outside default modules.
‘Because ILS is a SQL database, it is easy to create exports to and interface with any default solution, Robinson says. Several ILS customers currently interface with a particular default tracking system to monitor bankruptcy, loss mitigation, and real estate owned tasks and timelines, but clients can also export data to any investor or third-party vendor via ILS.
Jeff Mouhalis, executive vice president of product delivery with FIS, highlights the company's Magnifide toolset, which is designed to run in parallel with its MSP core servicing solution.
Currently, two servicing functions – loss mitigation and collections – are being primed for full functionality through Magnifide, he says. The collections feature will provide MSP users with additional queuing functionality, enables all loans – even those that are not delinquent – to be loaded into the collections system. That way, servicers are ahead of the curve with high-risk loans.
Magnifide's loss mitigation feature enables servicers to establish customized loss mitigation questionnaires by investor and loan type, Mouhalis says. As servicers work through questions with borrowers, viable workout options are intuitively presented to the loan counselor. Soon, the company will add a gain-and-loss-analysis feature via Magnifide to further enhance loss mitigation functionality.
