To Mitigate Losses And Avoid Foreclosure, Communication Is Key

Let's put all the cards on the table and tell it like it is. No more beating around the bush or pretending that it is not really as bad as the pundits say it is.

Even if we're not in a technical recession, it's not so rosy for many homeowners across the country. I won't belabor the statistics that have been thrown around lately, but the numbers are somewhere between six and eight on a 10-scale of gloom and doom with respect to credit tightening, loan charge-offs, portfolio write-downs, loan defaults, equity evaporation and, finally, foreclosures.

Ever since the housing market tanked last year and began dragging the rest of the economy down with it, federal policymakers have been throwing programs at the wall to see what sticks:

  • FHA Secure offers refinancings at lower interest rates.

  • Treasury Secretary Henry Paulson introduced HOPE NOW to freeze interest rates on some adjustable-rate mortgages for qualified borrowers.

  • Congress approved a $150 billion stimulus package that puts money in consumers' pockets via tax rebates.

  • The Federal Reserve has been incrementally lowering interest rates to spur lending and thaw frozen credit markets.

  • Project Lifeline, at the urging of the White House, resulted in six large mortgage lenders placing a 30-day foreclosure moratorium on homeowners who are 90 or more days overdue on their mortgages.

Aside from government policy and intervention, what is being done at a grassroots level from the servicer's perspective?

{OPENADS=zone=17}We all know that several options exist for homeowners: repayment plans, loan modifications, reinstatements, refinancings, deeds in lieu, short sales, etc. But what new and innovative solutions can servicers provide to help homeowners pay their mortgages or modify loans that are in or about to go into default?

If we can think outside the box, we may be able to positively impact the lives of the more than one to two million homeowners who are expected to slip into default in the next two years. Let's delve a little deeper and focus on two issues.

First, what is the greatest impediment to a successful loss mitigation opportunity?

A recent survey conducted by Freddie Mac indicates that 57% of homeowners are still unaware of the many loss mitigation options available to them in today's mortgage marketplace.

The survey concluded that while the percentage of borrowers who know they can talk to a housing counselor has increased from 36% in 2005 to 44% today, a disproportionate number of borrowers are still unaware that help is out there. This fact underscores the importance of convincing borrowers to reach out to their servicers and determine if they can avoid foreclosure.

Even if the borrower does reach out to the servicer, he or she may bump up against long telephone hold times, risk being passed around like a hot potato or may even get trapped in a poorly designed phone system. Many homeowners give up in frustration.

Without effective communications, successful loss mitigation will not thrive.

Second, what new, innovative or unique technologies are being implemented to make a significant impact on borrower retention and loss mitigation?

Some companies have focused their attention on improving borrower communications through unified messaging and database-driven Web sites. Integrated document delivery and intelligent telephonic features help contain servicers' costs while offering borrowers instant gratification and unified communications – either by phone, fax, Internet, text, chat, e-mail, broadcast messaging or click-to-talk technology.

{OPENADS=zone=18}Other technologies, such as direct, hot-call transfers from legal counsel to the servicer, also enhance the loss mitigation experience by reducing redundant or overlapping communications. Some servicers are providing loan workout packages at the same time that service of process is issued – when a civil complaint is filed.

Other servicers have even provided free cell phones to borrowers. In order to activate the line, the borrower must first contact the loss mitigation department, thus creating an initial point of contact for direct communication.

Foreclosure prevention is and should remain a top priority for servicers. The difference between success and failure will depend on the lengths to which a servicer will go to avoid a foreclosure. The old adage ‘Necessity is the mother of all inventions’ still holds true today.

Michael L. Zevitz handles mortgage foreclosure and bankruptcy matters in Kansas and Missouri for South and Associates PC. He can be reached at (913) 663-7600.


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