Rising borrower demand for loan modifications and new government mandates that compel the industry to modify a half-million loans by Nov. 1 put the mortgage industry squarely into a harrowing situation for which there is no "silver bullet" solution. The good news is that there is hope.
Well-intentioned government regulation designed to protect borrowers has added new layers of complexity to the already daunting process of reinvigorating this vital sector of the American economy. As the mortgage industry scrambles to develop competencies, maintain compliance and add much-needed capacity, the hidden solution may lie with process reengineering and the application of sophisticated analytics comparable to that used at the time of origination.
As a result of the current housing situation, borrower demand for loan modifications has soared to levels never before seen. At the same time, the industry is trying to answer fundamental questions such as: What is a modification? What does it entail? And how can it be tailored to address each borrower's unique circumstances? As servicers' phones rang off the hook with borrower inquiries, capacity became the first and most obvious concern as the industry worked to meet new mandates.
The servicers making the most progress in terms of fulfilling modification requests are the ones that have mastered the inherent similarities between modifying loans and originating them. Technology that is deployed in support of originations can, in many instances, be repurposed to streamline the gathering of borrower financial records, credit scores, employment status and other information essential to modifications. The greater adoption of technology not only accelerates the industry's response but also adds continuity and consistency to industry methods.
Sophisticated portfolio analytics can diminish the period required for servicers to review the intricate details of a borrower's financial situation. This lets trained mortgage professionals determine whether a borrower's portfolio makes him or her a viable candidate for modification and helps them develop better and more customized modification strategies in less time. In the absence of this analytic capability, borrowers who are eligible for modifications could be overlooked and borrowers who are not positioned to fulfill existing obligations may get modifications that will end in future delinquencies.
Automated portfolio analysis tools also provide the backbone for proactive outreach to borrowers who have not previously sought assistance. Servicers can use these tools to evaluate other mortgages in their portfolio and reach out to borrowers with predeveloped modification strategies. This would not only demonstrate a commitment on the industry's part to proactively helping at-risk borrowers but also accelerate progress toward satisfying the government mandate.
Another area in which technology can streamline loan modifications is in the use of Web-based, "self-service" tools that offer functionality to let borrowers enter their data into a secure Web portal and immediately determine whether they qualify for a modification. This would help borrowers understand the reality of their situations while averting difficult personal discussions. For servicers, this approach would allow more time to be spent executing viable modifications.
Though no magic solution may exist to instantly solve the many challenges associated with the loan-modification environment, progress, especially in light of constantly evolving regulation, requires the right mix of skilled people, effective processes and cutting-edge technology. With the people in place, it is time to focus on the last two components — process and technology — and start working smarter to help speed a housing recovery.