In the recent past, there has been a steady rise in home mortgage defaults and delinquency across different segments. The default risk of mortgages increased in 2022 as the housing market continued to face heightened volatility driven by rising interest rates and increasing job losses.
Experts say that spike in interest rates combined with inflation has led to a slowdown in home price growth, which is creating the uptick in mortgage default risk.
Challenges in default mortgage servicing
The rise in defaults means mortgage servicers are having to deal with an increase in customer requests, and an imminent surge in delinquencies and losses. The sudden unpredicted rise in volume is overwhelming for servicers especially since it is difficult to predict default trends due to shifting employment levels, inflationary pressures and a slow economy.
Increased regulations and requirements mean that default mortgage servicing like all other mortgage processes is a high-cost, manually intensive process. The increasingly small margins makes it difficult for servicers to find the capital needed to invest in the latest technology and innovation, often hampering efforts to streamline processes.
Further, the constant ups and downs of the market in the form of new regulatory compliance measures, high costs, changing technologies, and tighter budgets make it challenging for servicers to navigate through the situation efficiently. Disparate systems, huge unorganized data volumes, and legacy technology are other challenges that affect default mortgage servicing.
In the end, dealing with loan defaulters can induce stress putting servicers in a precarious situation and risk of writing off bad loans.
Streamlining default mortgage servicing
It is more important than ever for servicers to act now if they wish to move forward smoothly while dealing with default mortgage servicing.
Here are a few steps they can take to better manage default mortgage servicing:
Collections and Repayment optimization
One way of minimizing payment discrepancies and reducing the pressure on default mortgage servicing is by implementing an efficient collection and repayment system. Digital workflows can help back-office teams better plan payment recovery, dispatch letters of demand, classify borrowers, stay compliant, and regularly follow up with stakeholders. A robust Collections and Repayment process is important for default mortgage servicing.
Accurate analysis and summarization of default cases
Servicers require advanced technology and business intelligence solutions to offer them a precise picture of default cases so that they can plan servicing strategies. Such systems help highlight red flags at various levels, in turn, maximizing the opportunities arising from every foreclosed property. Strong data systems can also minimize loan modifications that are allowed for ineligible borrowers, preventing long term losses.
Explore loan modifications to re-engage default cases
Dealing with default cases is cumbersome because it can lead to a vacant and abandoned property. Instead, a loan modification option can be a win-win situation for both borrowers and servicers, as people get to keep their houses, and servicers get their monthly payments. However, accounting for loan modifications can be a challenge for servicers. The biggest expense is directed towards hiring and training a skilled team, paying industry standard salaries and benefits, and acquiring the equipment/technology required for setting up automated processes.
Outsource default mortgage servicing
One of the most effective ways to manage default mortgage servicing is to opt for a customized outsourcing solution that is an extension of the servicers operations and is both compliant and cost effective. Outsourcing solutions allow servicers to scale up or down as per their requirements and changes in demand. Outsourcing partners can also arrange for vendor management for property preservation and mitigation of losses resulting from defaults. It is best to associate with a partner who has in-depth expertise necessary for default servicing in terms of foreclosure laws, follow-up guidelines, and claims recovery.
How PrivoCorp can help:
PrivoCorp is uniquely positioned to help servicers of all sizes transform their default servicing operations. We have a robust platform specially for servicers to manage the forbearance and other default-related requests with a high level of quality and consistency. The solution rides on robust technology and a unique ticketing system that tracks every request through to its logical closure and tracks SLAs, timelines, and flags compliance issues.
Our default mortgage servicing solutions combined with technology-based tools, six-sigma, and ISO-driven processes are designed to reduce costs and deliver exceptional customer experiences. Industry experts with experience across multiple mortgage default servicing platforms ensure rigorous quality and governance through a milestone-based examination of mortgage loan servicing activities. Our hybrid delivery model ensures round the clock support to reduce cycle time and improve customer satisfaction.