REQUIRED READING: Investors are finding more mistakes and missteps in defaulted loans that took place during the loan origination process of the past decade. For primary mortgage servicers and special servicers, using technology for consistent and accurate data instills a process that turns loans from chaos to quality.
By the time special servicers receive loans, they are usually accurate on the loan side. The loans have been sold in the secondary market, and for the most part, they are fairly clean and scrubbed for any inconsistencies. However, in special servicing, there is a high-touch approach to borrowers and a detailed approach to analytics that reveals hidden data faults.
Special-servicing associates have a distinct ability to ensure consistency among loan data. They can ensure that promissory notes on loans match with property addresses and that deed transfers are accurate and in the files.
When a special servicer receives a loan, it gets boarded through a data tape and onto the servicing system. Without the proper data system, it is possible for miscommunications to occur. Absent a single trusted data source in a central database, different items go through various systems without necessarily communicating the proper data in a consistent manner. A single trusted source of data can send information to disparate systems and keep the same data intact so that everyone is on the same page and sees a snapshot of the same information.
With a central data warehouse approach, loan modules keep track of amortization, payment amounts and addresses, in addition to sophisticated reconciliation capabilities – high-level features tied together through data integrity. Again, everyone is on the same page, speaking the same language and using the same snapshot information that investors can view through a Web-based dashboard.
Importantly, the single trusted data source should not be taken for granted; companies dealing with legacy systems cobbled together have learned its benefits the hard way. In addition to keeping everyone in synch with a single source of data, the centralized information environment also makes having a single point of contact (SPOC) far simpler to implement and near- to real-time reporting a way of life.
Special servicers use economies of scale, putting everything into the system and letting human assets verify servicer data. The first scrub of data is an in-depth search that delves into compliance with checks on any obvious mistakes in the loan file.
Nimble systems and operations help determine if property addresses differ from mailing addresses. These address verifications will help to determine if borrowers are available at those addresses and able to work with loan-resolution consultants toward positive outcomes.
In concept, special servicers make an effort to locate borrowers. This is not as easy as it sounds – many borrowers use caller ID to avoid collection calls and have learned to detect the hesitation from auto-dialing technology. Establishing contact, rapport and trust requires subtlety and skill, and is largely unscripted.
Loan-resolution consultants use various skip-tracing tools in cases when a borrower cannot be contacted. Field-service representatives knock on doors to determine if borrowers are still living in the homes and property inspectors determine the condition of the property.
A loan-resolution consultant can protect borrowers by improving their financial literacy and understanding of their own situations. Borrowers, most of them bruised and battered by the events that led to their difficulties, often do not realize the potential for loss mitigation and the other viable alternatives available to them.
TransUnion recently indicated that more borrowers are still paying down credit cards rather than making mortgage payments. Sometimes, this is a cashflow necessity, but in many cases, it makes the difference between saving a home and ruining a credit score for years because they are not well informed.
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Investigative procedures are a way of life for special servicers. Loan-resolution professionals use data to do a great deal of homework on borrowers, the collateral, and the market trends. They check all liens and look for judgments and potential claims from homeowners associations for unpaid fees. Once they have a true picture, they will be better equipped to approach each borrower's situation and create scenarios that are attractive to homeowners and financial stakeholders alike. If loss mitigation is off the table, they will explore other foreclosure alternatives and work on taking the property into REO in the best possible condition.
Most investors and special servicers would like to believe that borrowers can make their payments and stay in their home, but it is obviously not always an option. The decision matrix – automated for many special servicers – leads the resolution specialist to the best alternative as quickly as possible, whether it be a workout, a foreclosure alternative like a deed-in-lieu or a short sale, or foreclosure if necessary.
Using available data and system analytics, along with a good amount of quality time on the phone with the borrowers, the loan-resolution consultant is frequently able to make a determination. While some borrowers can grasp the lifeline to stay afloat, others simply cannot, and must give up the house in the end.
In the case of foreclosure, all of the documents need to be accurate and letter perfect, especially in the post-robo-signing era. The foreclosure process is not the time to start making mistakes.
Dramatic outcomes are far from unknown in the special-servicing world. In some foreclosure cases, cooperating real estate attorneys will turn to a special servicer to see if the loan can be saved even while the foreclosure is in progress. This effort is successful more often than most might expect, especially if workouts and short sales can be negotiated quickly.Â
The key is in the data – the information that can help keep the least desirable final action – often foreclosure – from becoming the inevitable conclusion. The impact on the real estate market is immediate and tangible, too. Each foreclosure brings down neighborhood values by as much as 6%, and they mount up quickly.
The loss of a home is unpleasant for all parties involved. It's not a time for miscues and pratfalls that botch the process and make the front pages. Special servicers require accurate data and top-flight workflow practices to lessen the financial and personal pain for everyone impacted. Strong data helps keep chaos in check, enabling sound decision-making and the best possible outcomes in difficult situations.
Steven Shiller is vice president of asset management for Wingspan Portfolio Advisors, based in Carrollton, Texas. He can be reached at (888) 634-0808.
