The servicing industry needs to update its technology to deal with the high level of homes in foreclosure or seriously delinquent, according to a panel at the Mortgage Bankers Association's national servicing conference in Grapevine, Texas . Diane Pendley, managing director at Fitch Ratings, said the servicing programs for loans sold to government-sponsored enterprises Fannie Mae and Freddie Mac vary greatly from private servicing platforms. That adds to the problems currently facing servicers when trying to complete a modification, she said. John Harris, assistant vice president for foreclosure bankruptcy with MetLife Home Loans, said another difference is the trial period borrowers with loans backed by GSEs go through as opposed to the no trial period for other loans. He wondered why some people — roughly 10% to 20% — complete the three-month trial and then do not remit the proper paperwork to complete the modification. Peter Muriungi, senior vice president, special portfolio management strategies, at GMAC ResCap, said there is borrower confusion and backend infrastructure problems at servicers that hinder many modifications. Joe Dombrowski, executive consultant at Fiserv, said the servicing industry was caught somewhat flat-footed in regard to using technology properly to meet the needs formed by the housing crisis. "The real challenge is not only building a database but importing the data from borrowers," applying the new rules to that data and striping it out for the end-user, Dombrowski said. He said there's some consternation in finding funding for this type of technology and then dealing with the rapidly changing regulatory and compliance environment. "There's been a real sea-change the in the last 18 months, and technology is just now catching up," he said. "But I expect to see a lot of interesting changes in the next six to 10 months." Wise said servicers do struggle a bit with imputing all the changes in borrower data after a loan modification is complete, as some of the process is automated but much is still entered manually, and this varies from shop to shop. REALIZING LOSSES When and how to properly account for realized losses created by principal forgiveness also appears to be causing some confusion for servicers and investors alike. Carla Wise, executive vice president for residential loan servicing at Aurora Loan Services, said some industry participants advise recording the losses immediately while others believe the loss can be carried and treated as a forbearance. "But this proves tricky for the bondholders," Wise said. Investors at the top of the waterfall don't want to see the loss recorded immediately while those at the bottom probably do, she said. "You have to read your securities documents to see how to identify and report the loss," Wise said. But many pooling-and-servicing agreements don't include as much, so servicers many need to attorneys to figure it out or the company needs to decide how it plans to treat these cases. "Or you could be sued by any of the layers of bondholders," Wise said. "This is something our industry has been wrestling with on the non-GSE side of the business for some time." Ali Haralson, chief operating officer of Specialized Loan Servicing, said she sees many significant structural differences in the PSAs her firm processes, which has created a huge challenge. Haralson said Specialized Loan Servicing uses its own application to analyze the various data points and reach the best decision for the borrower, lender and investor. She also said the speed in which a servicer can reach a delinquent borrower and complete a modification greatly improves the ability to return the mortgage to a performing loan. Write to Jason Philyaw.