Mortgage foreclosures are costing mortgage servicing companies more than they should—they absorb 24 percent of the cost to service a loan. As a result, default management is a primary concern to mortgage servicing companies, or servicers. CSC is helping servicers protect their loan portfolio value and keep homeowners in their homes with its EarlyResolution® (ER) default management service.
ER is a Web-based application, operated in an ASP model. It automates the default management process and improves servicers' interoperability with business partners' systems while enabling clients to maximize ROI and cost savings within months of implementation. Along with process efficiencies, ER reduces foreclosure rates and compliance fees and increases repayment plan success rates.
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Related Information:
How loan default happens: three scenarios.
Read the announcement about CSC's acquisition of EarlyResolution. Find out how EarlyResolution can help servicers protect the value of their loan portfolio. Let CSC be your trusted guide in transforming your organization. Contact Us and Let Our Experience Help You Produce Results. |
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Servicers under pressure
Mortgage servicing companies have plenty to be concerned with: they must balance regulatory, credit risk and securitization compliant portfolios while adapting to complex and changing regulations and requirements from the government, loan investors and other regulatory agencies. They face high turnover in staff, dependence upon hundreds of external vendors and the lack of automated systems. And they are under pressure to reduce servicing costs.
The lack of effective technology and inefficient default management processes have resulted in many more foreclosures than necessary. Today's delinquency and collection processes are complex and highly manual, often relying on call center personnel who don't understand all of the options available to restructure debt. Inconsistent application of intervention rules, incomplete borrower information and poor audit trails result in a higher percentage of failed intervention plans.
Freddie Mac purchases scripting tool
In the late 1990s, Freddie Mac observed that some servicers' performance in managing delinquencies were substantially superior, and learned that a key factor was their use of a scripting and prompting tool by their loan counselors.
Freddie Mac proposed to its default advisory group—consisting of senior default managers from many of the major servicing companies—purchasing the intellectual property behind this tool from the servicer. Freddie Mac would port the application into a world-class technology architecture and provide a rules engine to allow each servicer to enter a set of specific parameters to enable the application functions to perform in their servicing centers. It would bear the cost of this development, and servicers would pay for hosting and operating the application as well as future enhancements beyond the initial product.
Four customers agreed, and Freddie Mac purchased the intellectual property in 2000. Freddie Mac then teamed with CSC and Revolent Technologies to build and maintain ER. By mid-2003, ER had been implemented successfully at these four customers' servicing centers.
Since Freddie Mac’s core business is not operating technology applications for external parties, the company needed a world-class provider to host the application in a highly available environment. CSC’s ability to deliver against ER’s key technical requirements of performance, reliability and security made it the front-runner to acquire the assets. In December 2003, the asset purchase was completed.
Default management empowered with technology
Prior to the development of ER, systems weren't effective at managing default. Servicers relied on legacy mainframe systems to support collections and loss mitigation processes. A variety of job aids and written procedures were used to drive conversations with the borrower, involving codes that collections staff had to interpret from the system. For example, a collector verified codes to determine if the loan was an FHA loan. Once verified, the collector referred to procedures to see what alternatives they could offer the borrower. The collector manually calculated a repayment plan, perhaps using an Excel spreadsheet, and, at the end of the call, the collector documented the conversation and updated the system with new codes or payment plan data before taking the next call.
ER eliminates the need for the collector to look up both the codes and the rules-based procedures in the legacy system. Instead, ER extracts all the data from the legacy system and interprets it for the collector. The collector follows well-designed scripts to interview the borrower and, based on the borrower’s responses, offers the best solution to the borrower. Because the legacy system is still the system of record, EarlyResolution generates a real-time update back to the legacy system. This ensures absolute integrity and consistent documentation of the call, and eliminates the "wrap-up time" previously required.
"EarlyResolution acts as the front end—it helps users access information held in the legacy system while simplifying the process to access that information," says Jamie Jackson, EarlyResolution managing director at CSC. "The system supports the user so that they can focus on the quality of the conversation with the borrower." With ER's prompting, the user can ask the questions that will lead to the most appropriate solution for the borrower.
The solution adds structure to the default process, but allows servicers the freedom to adjust the process to fit their specific customer interaction needs. The management control parameters ensure that every call is handled the same way. Since ER is integrated with the servicing system of record, call results are recorded automatically and reflect exactly what the borrower was offered. ER also offers context-sensitive help, a computer-based training module, and customer test environments, which allow customers multiple options to explore the application and understand how it functions with various parameters.
Deborah Oakley, senior vice president of default management at National City Mortgage, says that ER’s management controls offer the right mix of consistency and flexibility to allow her team to build rules that reflect their loss mitigation philosophy and meet the compliance requirements of their investors. “With EarlyResolution, we have realized significant improvements in default management processes. For example, in the first year of operation, we saw dramatic increases in the number of repayment plans for VA (60 percent), FHLMC (150 percent) and FNMA (180 percent) loans. Seventy percent of promises to pay are kept. Further, our absolute number of defaulted loans continues to drop even as our portfolio continues to grow.”
Clients also report faster application response times and higher availability. Robert Caruso, executive vice president of mortgage loan servicing at Wells Fargo Home Mortgage, says that ER has provided the right mix of efficiency, control and customer focus for his organization. "Since implementation, we have reduced our foreclosure rate by 20 percent in the last 12 months, reduced call-handle time by 15 percent and our bankruptcy rate has remained flat," he says. "We have been able to leverage this tool to demonstrate performance counter to industry trends."
EarlyResolution future direction
CSC plans to expand default management functionality using ER as the foundation. Since further efficiency gains in the default process are dependent upon improved interaction across multiple business parties, CSC believes that the utility operating model is the best vehicle to streamline the whole process.
To keep up with the changing needs of customers and the industry, CSC will continue to collaborate and maintain close relationships with users. "EarlyResolution is based on the design principle that the first call is the best call and should be the last call," says Jackson. "Regardless of the experience level of the agent, the system will guide them to a wide range of reinstatement and workout options."
Related Information:
Contact Us and Let Our Experience Help You Produce Results.