Investments Lending Servicing

"Rocket Mod": The future of mortgage default servicing?

How technology will change loss mitigation

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Over the last few years, technological advancements took mortgage originations from the fax machine to the smartphone and from months of waiting to approval in minutes.

Could the same thing be coming for mortgage modifications?

That’s the goal for Michael Malloy, Quicken Loans’ vice president of servicing, which already helped revolutionize the mortgage origination process with its fully digital Rocket Mortgage.

Rocket Mortgage, along with other offerings like Caliber Home Loans“Ultimate Homebuying Experience” and Fannie Mae’s “Day 1 Certainty” program, automate the underwriting process.

Now, validating a borrower’s income, assets, and employment can be done in a matter of minutes.

And in the future, Malloy hopes to bring the same sort of technology to default servicing, enabling Quicken Loans or any other mortgage servicer to make a decision on a loan modification in minutes, rather than in days.

As Malloy told a packed room during the “Future of Loss Mitigation” panel at the Mortgage Bankers Association’s National Mortgage Servicing Conference, being held currently in Dallas, the mortgage modification process used to take 60 days or more.

And while some servicers have that down to approximately 10 days, Malloy wants to enable servicers to make a modification decision in one day, or “no days.”

Joining Malloy on the panel was Ivery Himes, director of the Office for Single Family Asset Management at the Department of Housing and Urban Development; Erik Schmitt, managing director at JPMorgan Chase; Prasant Sar, supervisory policy analyst for servicing policy and asset management at the Federal Housing Finance Agency, and Pete Mills, the MBA’s senior vice president for residential policy and member engagement.

The discussion between the panelists touched on a number of issues that will impact the future of loss mitigation, including Malloy’s vision for automated modifications, which Sar nicknamed “Rocket Mod.”

To get to “Rocket Mod” or whatever it would be, Malloy said them mortgage servicing business needs to come together, and then it can push the technology forward.

“We all have the same goal,” Malloy said. “We need to be better for our clients. It’s what we need to do. If our industry is better, our country is better.”

To get there, Malloy believes the industry needs to pursue a plan he nicknamed “1 Guide,” which emblazoned a t-shirt that he and other Quicken Loans employees wore during the session.

“Here’s what we need to be thinking about,” Malloy said. “How can we align all of the aspects of default servicing? What are the best practices? How can we help the most people? How can we protect the taxpayers?”

What Malloy said next actually drew some applause from the crowd.

“My goal is to have one set of rules for default servicing,” he said. “Everyone’s servicing costs would go way down. The solutions would be better. Our communities would be stronger. You want a liquid market? Make it easier to service loans.”

And with simplified rules, then the technology can take over and speed up the modification process.

“We want to be able to make a modification decision when the consumer is on the phone,” Malloy said. “What can we do as an industry if we really thought about it? Every customer we talk to has two-way communication video device in their pocket. How can we use that technology to make things easier? How can we make it simpler?”

Sar agreed, coining the phrase of the day.

“It will be a great day when Rocket Mod is a real thing,” Sar said.

Schmitt added that using continuing employment verification could be a means to further mitigate losses.

“We have to bring technology into servicing,” Schmitt said. “We have the ability to automatically verify employment at origination, so why can’t we use that in servicing?”

Schmitt laid out an example where a borrower stops receiving income from their employer, which could trigger the servicer to call the borrower, and offer condolences: “Hey, we see that you just lost your job. We’re terribly sorry. How can we help?”

But as the panelists noted, there are plenty of other issues to tackle before the industry gets to automated modifications, such as the end of the government’s Home Affordable Modification Program, which expired at the end of 2016.

Fannie Mae and Freddie Mac introduced a HAMP replacement in December, which is called the Flex Modification foreclosure prevention program. The new modification will replace the current Fannie Mae Standard and Streamlined Modification offerings on and after Oct. 1, 2017.

As Sar noted, a great deal of industry input went into the development of the “Flex Mod,” adding that the FHFA feels good about its prospects for helping all parties involved.

Sar said that one of the main goals of the program is a “targeted payment reduction of 20%,” a goal that is being achieved by Quicken, which began using the “Flex Mod” in January.

According to Malloy, Quicken is very pleased with the initial results of the program. “We’re seeing 80% approval into the program, with an average payment reduction of 23% and as high as 48%,” Malloy said. “I believe this will help a lot of people.”

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