Since the foreclosure crisis began rearing its head years ago, one piece of advice has continually been directed servicing managers' way: Think proactively.
As the crisis continues to unravel, leaving borrowers uncertain about their housing, investors unsure about their returns and servicers swamped with loan modification inquiries, the advice – to get ahead of potential problem areas rather than play catch-up – remains as pertinent today as it was three years ago. Morgan McCarty understands why this is so.
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McCarty manages the Hattiesburg, Miss.-based servicing center belonging to Regions Mortgage, a subsidiary of Birmingham, Ala.-headquartered Regions Financial Corp. A 20-year veteran of the company, he was instrumental in reshaping Regions' approach to loss mitigation – an initiative that began in early 2007 and culminated in the formation of the company's proprietary Customer Assistance Program (CAP) later that year.
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Regions services about 300,000 loans, almost two-thirds of which is agency paper. The CAP, however, was designed with Regions' 90,000 portfolio loans in mind, and since its creation more than two years ago, the program has helped over 6,000 borrowers avoid foreclosure through a combination of loan modifications, short sales and deeds-in-lieu.
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"We really set out in early '07 to retrain our entire default operation and how we went about collecting, because we could see the shifting in the winds," McCarty says.
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The project picked up steam in the fourth quarter of 2007, when Regions, perhaps sensing things to come, transitioned a unit of loan processors and originators into servicing, making them responsible for loan modifications. The originator-turned-loss mitigator approach to default management has gained traction this year, as the industry gradually accepts that loan modifications today require much more than simply recasting arrears. Regions stood at the forefront of that movement.
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Another notable milestone in the CAP's evolution occurred when the company decided to systematically attack the looming threat of adjustable-rate mortgages (ARMs). The strategy involved reaching out to borrowers six months before their rates were set to adjust. Regions then segmented the borrowers by credit score – the home retention department worked loans for borrowers with good scores, while default managers handled the others.
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"We have to be proactive, especially with ARM resets," McCarty says. "The last thing we need is a second wave of delinquencies."
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Running the reports to show which borrowers will have upcoming payment increases and the subsequent credit-score stratification isn't hard, McCarty says, but maintaining contact with the borrowers and collecting documents are. Regions' default processors can approve a modification in 24 hours, provided all the documentation – which McCarty says is "very similar" to the federal modification plan's document requirements -Â has been collected. In lieu of a timely submission by borrowers, the company's default team sends out its first reminder letter at the 10-day mark. Staff members are required to make weekly contact with borrowers who are slow in returning financials.
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"The key is to keep talking with that customer," he says. "I think the main thing is to let the customer know we're trying to help them, and in order to help them, we need the documentation to determine what's best for them."
All about flexibility
Regions' strategy has paid off, so far, as the redefault rate for all mortgages modified under the CAP stands at an impressively low 25%. Much of the program's success can be attributed to its flexibility – a point that McCarty emphasizes in explaining the CAP structure. Instead of the one-size-fits-all modification model that has been trotted out in different forms by federal agencies in the past year, Regions' modifications take many shapes, including the occasional principal reduction.
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"Each borrower has a different set of circumstances, and we try to tailor our program to fit the circumstances of each borrower," he says.
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Certain elements of the CAP today do not resemble the program's original look. When the CAP was launched in 2007, term extensions were used heavily.
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"That's evolved to bringing the rate lower," McCarty mentions, estimating that 90% of the bank's modifications nowadays result in reduced monthly payments. While the bank, like the industry as a whole, targets affordable modifications for its borrowers, "we're not stuck with a hard [debt-to-income ratio]," he adds.
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Loan resolutions that do not end with home retention, such as short sales and deeds-in-lieu, have grown dramatically over the past year. Regions executed more than 100 short sales in the second quarter of this year, or a little less than one-quarter of all the bank's short sales going back to early 2007.
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In other instances where a long-term, sustainable modification appears ill-fitting, the company will reduce a borrower's rate for an agreed-upon length of time – generally, one year – with the hope that it gives the borrower ample time to market his or her home. In turn, Regions requires a listing agreement on the property.
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McCarty also notes the value of regular training and feedback sessions between management and staffers. The shop holds two weekly sessions with customer service representatives, during which they discuss problem scenarios that popped up during the week. These informal discussions have paved the way for operational changes, such as a renewed effort to work with borrowers whose insurance premiums were rising substantially from one year to the next.
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"We built in behind-the-scenes processes to catch those payment increases well in advance of that anniversary date so we can work with the customer to either spread the shortage over a longer period of time or, if need be, modify the loan," McCarty explains. "That [suggestion] came directly out of some of those twice-a-week meetings."
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The constant communication has also helped Regions maintain impressive customer assistance metrics.
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"Right now, we're running 97 percent first-call resolutions," he explains. "That's something we've focused on for many years. I've also got a very experienced staff that's been together for a long period of time. We focus on keeping our average speed-to-answer time below 25 seconds. We're not happy if we're not below 25 seconds."
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That attention to detail has paid dividends in ways other than customer retention. In August, Regions netted the top spot in J.D. Power and Associates' 2009 Primary Mortgage Servicer Satisfaction Study, which polled 5,000 customers and covered the nation's 27 largest servicers. The study measured customer satisfaction based on four areas of loan service: annual account review/administration, payment processing, billing statements and payment coupon books, and contact. Regions scored a 780 on J.D. Power's 1,000-point scale, followed closely by BB&T (777 points) and U.S. Bank (771 points).
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In announcing the survey results, J.D. Power said the companies that rank highly "tend to perform exceptionally well in limiting the number of customer-reported problems, which results in high brand image ratings." Customer retention and business referrals go hand-in-hand with high levels of customer satisfaction, says David Lo, director of J.D. Power's financial services outfit.
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"In contrast, just one dissatisfied customer translates to an average of more than five negative recommendations," Lo states.
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Accolades such as the J.D. Power award helps keep staff morale high, McCarty says, adding that staff burnout is "always a possibility," especially in today's business environment.
"It's always hard where a customer has had a recent job loss," he says. "Even though you hear it every day, it doesn't make it any easier when you're talking to your customers.
"As long as we can keep focused on trying to do the right thing for our customers, our staff can really buy into that philosophy," he adds. "They understand that we're doing the things we need to do to try to help our borrowers who find themselves in difficult situations."
– John Clapp, editor, Servicing Management
