Servicers are innovating to maximize loss mitigation efforts, with changes coming to the way companies manage customer relationships, their own employees and the standard for executing loss mitigation strategies, according to Tony Meola, CEO of Fort Worth-based mortgage servicer Saxon Mortgage Services. “If someone tells you that change is what’s required today, I would tell you to tell them they’re wrong. I would tell you what’s needed today is innovation,” Meola said, speaking today at SourceMedia‘s loss mitigation conference in Dallas. He added that anyone working at or leading a servicing shop who doesn’t believe in innovating processes are only hurting their companies. The servicing industry is operating in an unknown market during unprecedented times with unknown consequences of new legislation and constant regulatory changes, he said. It creates many unknowns for servicers, whose goal it is to protect assets and minimize losses on mortgage portfolios. Saxon is a subsidiary of financial services firm Morgan Stanley (MS), and its combined servicing portfolio is valued at approximately $42bn. But every portfolio is different. A regional bank’s loss mitigation goals differ from hedge fund investors. Among investors, there are varying appetites for risk, and mortgage giants Fannie Mae and Freddie Mac have their own sets of criteria in loss mitigation. Further impacting decisions is the timeline of each portfolio and how long each owner expects to incur losses. Meola said among four of the biggest portfolio owners, the target for resolving their distressed mortgages ranges from 2013 to 2017. “Like it or not, this large-scale standardized widget business of servicing has gone custom on us overnight,” Meola said. “This giant loan servicing elephant has turned into a swift bobcat.” Servicers have traditionally dealt in CRM — credit risk management — but Meola said there’s a new CRM that’s just as important for servicers: customer relationship management. “If we don’t incorporate the two CRMs, we are missing half of the problem,” Meola said. Meola said 47% of borrowers who ultimately foreclose never speak to their servicer. If the cure rates of loss mitigation strategies discussed when a servicer does talk to a borrower is applied to that additional 47% of the portfolio, a significant reduction in losses is generated, Meola said. There is no “gold standard” for what the best servicers or loss mitigators look like or how they operate, Meola said, but the shift in operations starts with employees. Before the rise in foreclosures, servicer employee contact with borrowers was limited and focused on selling new products — credit cards, new checking accounts or other products. Servicing operations were focused on how to streamline operations and cut costs in payment processing. The old motto was “the first one to zero wins,” when it came to cutting costs, Meola said. But distressed borrowers don’t need new financial products and that old way of handling the customer contact doesn’t work. Now, servicers have to get a borrower on the phone — a challenge in-and-of itself, Meola says — chart the path to resolution and execute the transaction flawlessly. “If you have somebody on the phone that’s the actual borrower, you don’t want to let them off the phone until you’re on that resolution path,” he said. Write to Austin Kilgore. The author held no relevant investments.
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