REQUIRED READING: While reports indicate a decrease in the number of new foreclosures, timelines are escalating for the current volume – often reaching two years. A recent RealtyTrac report showed a 35% drop in the number of foreclosures from 2010 to 2011; however, the continuing struggle with the existing inventory is evident. The mortgage industry must realize that this decline is largely due to the backlog of properties and ongoing processing delays.
But time is not an ally to the servicing industry. According to the Government Accountability Office (GAO), vacant foreclosed properties can reduce the prices of nearby homes by as much as $17,000 per property. Reducing the inventory of unoccupied homes benefits the lenders that must take ownership of them and helps the neighborhood and community remain strong.
Thus, making contact with the borrower is the crucial initial step of any loss mitigation process. But it has often been one of the most difficult. More servicers are getting creative, using innovative methods to initiate communication: Some companies send unique mailings in hopes of piquing homeowners' interest and attention, while others provide incentives, such as gift cards to borrowers who agree to take part in a loss mitigation plan. Others host local events, inviting borrowers to hear important information and learn about their options in a supportive, cost-free environment.
However, when calls, mailings and out-of-the-box methods fail, personal outreach yields the best results. The face-to-face communication forged through door-knocking efforts most successfully leads to right-party contact, enabling servicers to hand-deliver documents, gather necessary financial information and address homeowners' questions and concerns. Some companies have seen as much as a 58% right-party contact rate as a result of door-knocking campaigns.Â
Lending a hand
After countless unsuccessful attempts to make contact on their own, servicers often decide to seek assistance from a third party. With maintenance costs rising and home values decreasing, their top priority must be to launch a strategy in the most efficient manner – and obtaining help from a vendor with loss mitigation expertise is often the best method. There are several key items to be aware of when selecting a loss mitigation partner, so servicers should closely examine different vendors to compare their processes, technology and staff.
Choosing a third-party partner for any aspect of the loss mitigation business requires careful due diligence. Servicers should first explore a vendor's history and not be shy about calling references, with a myriad of questions for verification of service claims.
It is also important to ensure a vendor is licensed nationwide and offers comprehensive programs to support all stages of the loss mitigation process. Servicers should check to see if the vendor offers borrower counseling services, facilitates referrals and handles negotiation and liquidation issues.
But a vendor's track record of success, on its own terms, is no longer adequate. Vendors must be able to tailor their services according to each client's unique business. Servicers must also be clear when speaking with vendor candidates about their company's needs and client base and should evaluate their ability to customize services.
It is essential to partner with a company that establishes high standards for neighborhood home consultants, because insufficient training and experience can lead to misinformed homeowners, inaccuracies and extended timelines. Servicers should confirm that the vendor requires its neighborhood home consultants and employees to complete Fair Debt Collection Practices Act (FDCPA) training and examinations. This vital instruction ensures neighborhood home consultants comply with all federal and state regulations, and are able to gather all necessary information from borrowers and properly inform homeowners.
Once contact is made, neighborhood home consultants must have viable options available and ready. An ill-prepared agent risks losing the homeowner's attention, trust and cooperation, while well-trained neighborhood home consultants can most effectively present borrowers with options, aligning the interests and objectives of the bank with those of the borrower to achieve the best results and secure a positive outcome for all parties.
In addition, servicers should beta-test various companies. Many servicers today administer ‘champion challenges’ with two or more vendors, establishing a competition to determine which company demonstrates the best performance over a specified time frame with a given number of assets. These challenges enable servicers to address any concerns and select the best partner for their business. For an even greater perspective, servicers can request vendors' results from previous ‘champion challenges’ and include them in their decision process.
Every company manages programs differently, of course, and servicers must determine which vendor fits their business model and can best customize a loss mitigation program according to the clients' needs. But with the current quantity of distressed properties, traditional servicing methods are simply not enough. Today's market requires servicers to adjust their loss mitigation strategies, as improved processing and the creation of shorter timelines are crucial components of the real estate market's revival.
Brent Taggart is senior vice president of client relations and business development at Green River Capital, based in West Valley, Utah. He can be reached at email@example.com.