Minimizing losses from bad loans in this economy can be an exercise in tapping water from a stone. But the process can be made slightly more fruitful when lenders can see a complete account of a consumer's financial health, as opposed to a snapshot of just one loan gone bad.
Firms that offer collections and loss mitigation tools - Fidelity National, First American, SAS, Fair Isaac, and others - are going through a renovation spurt that leverages all of a consumer's financial relationships to enable a holistic view that puts the troubled loan into a larger perspective, eschewing legacy systems that focused on a single product. "Financial institutions are starting to think across silos, and are seeing the value of viewing consumers across financial products," says Tom Wills, a senior analyst for security and fraud at Javelin Strategy & Research in San Francisco.
To respond to this evolved thinking, collections and loss mitigation platforms are graduating to a level of Web-enabled sophistication that culls data from multiple channels and multiple products, looking at loans, transaction histories, online banking sessions, call center calls and interactions in branches to discover early clues that a mortgage, auto loan, credit card, or some combination of products are in trouble. The product advances were necessary, but speeded by current market conditions, Wills says.
Here's what he means: Fitch's Prime Credit Delinquency Index passed 4 percent at the end of the year, about 30 percent above its historical average. The American Bankers Association reports late payments on consumer loans were at their highest levels in 28 years, nearing three percent at year-end, surpassing the record of 2.88 percent set in 1989.
Danny Tursky, a product strategist for the Jacksonville, Fl-based FNIS, which targets the market's 100 largest lenders, says the growing industry-wide adoption of service oriented architecture allows a wider range of systems - even those belonging to a broker or third party - to be mined for data, which can actually serve to isolate a consumer's troubled financial instrument. Jody Vasquez, an svp for FNIS, says this full view can allow a borrower's savings account or CD to be tapped to help reconcile a delinquent credit card, auto loan or mortgage bill.
Also, by automating business rules, collections platforms also become more flexible. "The challenge in the collections market is staying up with all of the changes that are happening right this minute," says Bob Thornton, president of First American Default Technologies in Lousiville, KY, which counts the five largest banks and mortgage lenders among its client base and is automating its VendorScape suite of loss mitigation and serving tools to allow lenders to quickly alter business rules.
Banks can also repurpose emerging mortgage-pricing models to get a jump on troubled loans. David Sisko, a director for Deloitte, suggests internal data such as LTV ratios and FICO scores can be combined with external data such as Case Shiller home valuations, mapping and regional demographic data to identify borrowers that are actually current on mortgage payments by may become stressed in the near future. "Borrowers often don't want to admit they have a problem," he says. "But even if the borrower's not calling in, you can still find a stressed loan."