Servicers Customizing Strategies to Succeed in Loss Mitigation, Lower Redefaults
Customizing workout plans for delinquent and defaulted borrowers is the best strategy for reducing the recidivism rate of mortgage workouts, according to Ronald Faris, president of Ocwen Financial Corp. Speaking at the Source Media Mortgage Servicing Conference, Faris said his servicing shop has succeeded in lower redefault rates than Office of Thrift Supervision (OTS) and Office of the Comptroller of the Currency (OCC) because of these customized solutions. While the industry trends at around 50%, Faris said Ocwen’s redefault rates are between 20% and 30%, although he acknowledged that rate is still very high. “We’ve worked on developing solutions that are optimized,” he told the audience. Faris said creating a modification that provides the best return for the mortgage owner doesn’t necessarily mean setting up the maximum monthly payment the borrower can pay. By giving the borrower a lower payment than what they can max afford reduces the risk of redefault and the net value to the investor may be greater, Faris said. Ocwen uses a team of psychology professionals to study borrower behavior and develop the best strategy for working with borrowers. Scripted phone calls can be implemented across a large company’s platform, but Faris said Ocwen takes it one step further by having the psychologists develop the wording of the script to get the best possible response from the borrower. Ocwen also uses a series of strategically-timed letters, increasing the seriousness of the message with each draft. Another psychological concept Ocwen implements helps change borrower perception about default. By telling the borrower millions of Americans are in danger of losing their homes, and they are one of those, it reinforces the belief that default is okay. Instead, Ocwen tells borrowers about the success the company has made in helping borrowers stay in their homes, and offers to discuss a way to help that borrower in the same way. In addition, instead of just telling the borrower that the sooner they make a payment, the better is it, Ocwen employees cite specific examples of how it benefits the borrower. Ocwen is one of many servicers that’s changing the way it operates to respond to the foreclosure crisis. Arvin Wijay, CEO of Retreat Capital Management said his loss mitigation outsourcing firm adopted a mentality beyond simple collections. The collection mentality doesn’t bring a true feeling for the homeowners’ distress, he said. While collections-focused firms may have call center staff make as many as five calls in 30 minutes, some individual calls at Retreat last that long. He said the firm sees the borrower's problem, walks through it with them and talks to them about the problem. “Real estate in general is a global problem but it’s a local solution,” Wijay said. “If you don’t provide local solutions, you’re not going to succeed in this market.” One such solution is utilizing call center staff that speak languages other than English, including Spanish, Vietnamese and Persian. “The borrower feels like they’re talking to their own people and they’re not going to take advantage of them,” Wijay said. Write to Austin Kilgore.