The two biggest challenges facing mortgage servicers include long judicial foreclosure timelines in certain states and swooping regulatory changes, said Retreat Capital Management Vice President John Cottrell, while speaking at SourceMedia's 7th Annual Mortgage Servicing Conference.

When it comes to judicial states, Cottrell said, "There are many legal barriers that are creating challenges for the servicer. There is a burdensome amount of documentation that the servicers have to provide to the states. The courts are very understaffed and lot of paperwork is getting backed up."

Additionally, the statutory and regulatory changes hitting the industry remain a major challenge.

"We waste all of this time getting these changes done, and we forget our foreclosure timeline. Then once we get all these changes done, we get another change that throws everything off again," Cottrell explained.

In order to deal with these obstacles, Cottrell believes companies should have a strong, internal compliance department coupled with an experienced in-house attorney. He also stresses the importance of having open communication internally and externally with vendors. 

Meanwhile, Cody Trobaug, short sale director with Wingspan Portfolio Advisors, advised on how to keep up with the surge in short sales.

He explained that compliance, tracking and quality reporting help foster the process. Companies need to be able to create transparency for the real estate agent and homeowner, he said. 

"There are a lot of tools out there to help from a valuation standpoint. It helps in the work sale, but it also helps stop short-sales fraud. These tools can help put a lid on that very early in the process," Wes Iseley, senior managing director with Carrington Investment Services, added.

As a whole, Randy Wussler, vice president of product development and marketing at DataQuick, said, "If you look at what is coming into the pipeline and what is left, there are better borrowers. We have cycled through a lot of the problems from the boom and the bust."

He added, "If you compare the fourth quarter 2011 to the fourth quarter 2012, all delinquencies are down. However, it is not a rosy picture everywhere, and you will find pockets of problems."

The housing market is showing improvement, but it is still in the middle of trying to patch the problems up. Experts advise taking caution with these obstacles and using whatever tools are avalible to overcome challenges.