Gerald B. Alt, president and chief operating officer of LOGS Network, made a compelling statement during a recent conversation with SM: ‘One-hundred percent of your no-contact borrowers end up in foreclosure.’
Perhaps more so than at any time in the past, every servicing operation – from the smallest community banks to the largest mortgage companies – understands the validity of the statement. Today, being attentive to each delinquent mortgage and distressed borrower can determine whether your organization stays afloat – let alone remains profitable.
Loss mitigation, it seems, has permeated every stage of delinquency and default management, as well as become an integral part of most servicers' foreclosure processes. From the first collection call to the last piece of foreclosure, no one wants to give up. The costs are simply too high.
Defining "default outsourcing" can be a difficult task. Does the term apply to call-center offshoring? Is it defined solely as measures taken by third parties to prevent the escalation of default? Are foreclosure processes included?
These days, default outsourcing appears to constitute any efforts servicers make to draw outside assistance for reinstating delinquent mortgages and keeping borrowers in their homes. If such efforts on the part of third parties fail, default outsourcing extends into the foreclosure realm – where loss mitigation continues.
Chuck Newcomb serves as chief operating officer of Stewart's Home Retention Services Inc. – a group that has been in operation since December 2007. He explains that last year, Stewart Lender Services' (SLS) clients began experiencing profound issues with handling delinquency- and default-related volumes, which spurred many to outsource these tasks to SLS.
"Our goal is to prevent foreclosure," Newcomb says. "We do everything up to that point."
He points out that Home Retention Services is not in the collections business. Rather, the group is in the communication and loss mitigation business. Generally, servicers send Home Retention Services the files of no-contact borrowers at 60 days of delinquency.
Of course, this timeline implies a huge rush of action before the 90-day mark, when most foreclosure referrals are inked. The company, therefore, must race against time to connect with consumers.
"Everything is built for making contact with a customer," Newcomb notes. Skip tracing, door knocks, occupancy-status checks and related strategies – conducted mainly through field service companies – are all within Home Retention Services' bailiwick.
Ty Miller, chief operating officer of First American First Lien Outsourcing, says his group performs similar functions, but usually beginning at day 31 of a borrower's delinquency. The group is tasked with making calls to homeowners and sending FedEx packages, as well as reaching out to delinquent borrowers – at home – through a network of field service vendors.
In fact, although First American First Lien Outsourcing offers a wide complement of default-related outsourced services, tracking down no-contact borrowers is in particularly high demand, he comments.
eMortgage Logic – a company that has spent years specializing in providing broker price opinions to the default servicing community – has also thrown its hat into a wider default outsourcing ring.
Gene O'Bannon, the company's executive vice president of business development, explains that eMortgage Logic's latest strategy leverages the deep network of real estate agents it has developed to provide servicers with local representation for making contact and initiating loss mitigation discussions.
"We designed this to be able to reach out and touch the consumer using the same automated process that we use when our clients order a broker price opinion," he says. Now, that automated process – coupled with brokers on the streets – facilitates loss mitigation.
Automated orders alert brokers to attempt to make contact with specific borrowers. If successful, eMortgage Logic – on behalf of the servicer – requests that the broker take the borrower through a financial package and collect a recent pay stub, thereby kicking off a loan modification.â�¦so the servicer can do a loan modification.
The key element of this program, O'Bannon says, is its local flavor. Borrower outreach takes place in borrowers' communities, either by phone calls made from local area code to local area code or through day, evening and weekend door knocks at residences.
Like clients of First American First Lien Outsourcing and Stewart's Home Retention Services, servicers working with eMortgage Logic prioritize sending non-contact files. Quite simply, entities other than lending institutions have recently had more success gaining traction with delinquent borrowers.
"We have found that a neutral third party talking to a borrower is sometimes a great advantage," Newcomb comments.
Because of significant legal expenses and the unpalatable cost of holding real estate owned properties in today's market, loss mitigation and – by extension – default outsourcing extend beyond foreclosure referral.
Clay Cornett, president of Fidelity National Information Services (FIS) unit FIS Default Solutions, notes that his group has refined its centralized outsourcing model over the years. FIS Default Solutions, however, does not pursue loss mitigation on behalf of servicers. Instead, the group helps lift the burden of foreclosure processes from servicing organization, enabling companies to focus on their core competencies.
"Now, because we have an efficient system and process, it seems servicers have a greater willingness to look at our services," he says. "They can then focus on loss mitigation efforts."
Cornett characterizes FIS Default Solutions' approach as "a four-legged stool" comprising data analytics and foreclosure process, invoice and document management, powered by the company's FIS Desktop technology – a robust communications tool that connects servicers, attorneys, trustees and investors decrease costs and manage timelines associated with foreclosure.
It is quite possible, of course, that servicers benefiting from foreclosure-related default outsourcing might still be overwhelmed with more loss mitigation work than they can handle, despite the efficiencies delivered by companies such as FIS Default Solutions. Indeed, it seems that there is plenty of work to go around.
Alt says LOGS Network's HEART Financial Services division experienced a substantial upswing in business from a couple of large servicing organizations this spring. Similar to Stewart's or First American's loss mitigation units, HEART is a third-party fulfillment service. However, the division's work begins at the point of foreclosure referral.
All servicers are familiar with the papers served to borrowers upon foreclosure. Three names are conspicuously listed on the paperwork: those of the borrowers, lending institution and creditor's counsel. And whom do borrowers most often call when served? Your attorney.
Years ago, when a borrower phoned a servicer's law firm, the conversation usually went something like this: "Do you have the money to pay your mortgage?" If the borrower didn't, the conversation often ended.
But today – after a period of some reluctance on the part of servicers and their counsel – conversations between a lawyer and borrower are different. Many servicers have empowered law firms to first confirm that the homeowner is who he says he is and determine if the home is the primary residence.
The discussion then turns toward solutions. Does the borrower want to stay in the home? Can the borrower afford the mortgage? If so, HEART steps in.
"We built HEART to centralize this function – to support our law firms, in addition to doing direct work for servicers," Alt says.