Brian Longe is president and CEO of Wolters Kluwer Financial Services, where he leads the company’s overall growth and strategic direction. An accomplished business executive with more than 20 years of experience, Longe is responsible for the financial, operational, sales, marketing and business development aspects of Wolters Kluwer Financial Services.
For this episode of In This Corner, Brian discusses innovations and challenges in the loan modification process.
HW: How does Wolters Kluwer Financial Services streamline the modification process?
Brian: "Lenders and servicers across the country are struggling to keep up with an unprecedented and growing need for loss mitigation solutions. Increased borrower demand for loan modifications, limited in-house resources at financial institutions and complex, dynamic government modification programs have all made keeping pace extremely difficult.
"Wolters Kluwer Financial Services’ Loss Mitigation Service helps financial institutions take a comprehensive yet practical and efficient approach to managing the difficult task of modifying large numbers of loans at risk of default. Our service can help institutions quickly triage a servicing portfolio to analyze and determine which loans qualify for government and servicer-specific modification programs; understand the impact of changing regulation behind government modification programs and how to comply with their requirements; strengthen their ability to handle dramatic increases in loan volumes without additional staffing; shorten modification delivery and acceptance times and reduce regulatory and operational risk by automating inefficient manual loss mitigation processes.
"In fact, during the first half of 2009, we partnered with lenders and servicers to help them perform more than 50,000 standard loan modifications and initiate nearly 56,000 Home Affordable Modification Program (HAMP) trial modifications. By helping our clients initiate and complete so many modifications so quickly, we’ve been able to help them reach out to distressed borrowers faster. We’ve also helped the lender or servicer have more time to work with the borrower to develop a repayment plan to avoid a costly foreclosure."
HW: It’s clear what the foreclosure cost is for a homeowner, but what is the foreclosure cost for a lender?
Brian: "A foreclosure not only adversely impacts the homeowner, lender, investor or servicer, but also the community they live and do business in as well as an already weakened real estate market. According to the Joint Economic Committee of Congress, a typical foreclosure results in up to $150,000 in losses for the homeowner, lender, local government and neighbors, who may see their homes depreciate in value. In July of this year, RealtyTrac issued a report claiming a record 1.53m properties were in the foreclosure process during the first six months of 2009. Put the two numbers together and foreclosures through the first half of 2009 have the potential to drain more than $231bn from the US economy.
"One direct impact of foreclosure for the lender or the investor is that the deterioration of loan performance in a specific area may weaken the performance of other similar loans in their portfolio. There also remains the potential for exposure to reputational risk from government or local community groups that comes with being perceived as responsible for removing families from their homes. The Treasury Department made it clear it plans to call out servicers that it believes are not working hard enough to help distressed homeowners modify loans through a regular report card it began issuing in August. There is clearly a need to help prevent foreclosures and the costs associated with them for all parties involved."
HW: The Home Affordability Modification Program (HAMP) gives incentives to lenders for modifying loans. Are those incentives working?
Brian: "The HAMP program is a very good program, but it is just one piece of the overall loss mitigation process. Recent figures in August provided by the US Treasury Department as part of its initial report card, or the Servicer Performance Report, indicate that more can be done. In the report, the Treasury said that 235,000 borrowers have begun trial HAMP modifications, the first stage in getting a mortgage reworked under the program. While the Treasury says the program is ramping up in an impressive way, it wants servicers to more than double that number and have 500,000 trial modifications in place by Nov. 1, 2009. That’s a short amount of time considering it took nearly five months to initiate the HAMP modifications to date. The Treasury’s report also showed there are still significant variations in modification performance among servicers and illustrated the need for many to boost capacity and further train employees on the modification process.
"It’s also important to note that those figures exclude mortgage modifications outside of the HAMP program. And banks and servicers have launched their own in-house programs to restructure mortgages that are not included in the figures."
HW: What is the model for a successful loan modification?
Brian: "With loan modifications taking on a more significant role in loss mitigation, and continued pressure by the Treasury to get HAMP servicers to do more at a faster rate, developing and executing a comprehensive strategy is critical to ensure efficient, consistent and accurate execution of the high volumes of loan modifications facing servicers today. And with the rapid and continuing influx of new legislative and regulatory guidelines, a servicer’s model must be flexible to rapidly respond to new requirements.
"For loan modifications to be successful as a loss-mitigation tool there needs to be a scalable, repeatable process that is flexible enough to meet each borrower’s needs. To do that, servicers need a model that accomplishes four key elements. First, servicers need to proactively segment their borrowers and establish criteria for each group, providing clear guidelines for borrowers and underwriting criteria that can be applied across the portfolio.
"Second, offer the best loss-mitigation solution to meet the borrower’s needs. With clear borrower segmentation, servicers and lenders can more quickly provide borrowers with the appropriate solution.
"Third, servicers need to have processes established to execute the loan modification in a timely manner. Be proactive and identify obstacles in the established workflow processes, and develop and implement methods to streamline those processes. In particular, servicers should identify and eliminate any administrative or manual processes that pull resources from borrower interaction.
"And finally, servicers need to provide consistent and accurate documentation. Servicers and lenders must be prepared to implement compliance updates to documents quickly. Providing accurate compliant loan-modification agreements and supporting documentation requires assessment of a servicer’s internal compliance and content change-management capabilities. Consistent documentation supports systematic implementation, compliance and auditing responsibilities."
HW: How can a servicer save money and time while reaching out to more troubled borrowers?
Brian: "Servicers are very overwhelmed with pressure from the government and consumer groups to quickly implement loan modification programs. However, many servicers have limited resources and are utilizing manual, non-systemized processes that were not designed for their current situation. Those that are trying to automate and speed up the modification process are often adapting their existing technology platforms which are not generally designed to handle large loan modification workflows. In fact, in many cases, they were simply built to collect and record payments and help the servicer pursue borrowers not making payments. With the typical underwriting elements of credit, asset and income verifications now a standard part of a loan modification workflow, this has the added impact of creating delays in a servicer’s ability to generate, complete and deliver compliant loan modification documents to the borrower. And most servicers do not have the resources to continually and rapidly respond to constantly evolving legislation and regulatory guidelines related to modifications. The end result is that borrowers who are facing foreclosure may not be reached until it is too late.
"But by partnering with a comprehensive provider like Wolters Kluwer Financial Services, servicers can quickly overcome any obstacles their current technology platform presents in rapidly modifying large numbers of loans. For instance, our Loss Mitigation Service can help servicers immediately begin evaluating their portfolios, allowing them to determine which borrowers will qualify for a government or servicer-specific modification. We can then help them rapidly generate and deliver compliant electronic document packages for signature to borrowers in hours versus days and complete the settlement process through an online portal that allows them to pull credit reports, generate AVMs and various alternative valuation products, perform appraisals, obtain flood determinations and secure title searches and title insurance. Finally, servicers can e-record the modification package within any US jurisdiction that will accept it using our online service.
"Partnering with a trusted third party provider like Wolters Kluwer Financial Services can help servicers minimize the number of loans that go into default while maximizing the use of their internal resources. This not only saves them time and money but allows them to help more distressed homeowners stay in their homes."