Missed payments are not a matter of overt concern until the second missed payment period has passed – which means the borrower is 60 days late in making payments. When a borrower misses two consecutive loan payments, the account is considered in early-stage delinquency.
Mortgage servicers are responsible for handling delinquent loans. Mortgage servicers also handle the day-to-day processing of mortgage loans which includes communicating with borrowers and investors, processing payments and handling escrow accounts. So, if a borrower does not rectify the delinquency, mortgage servicers are responsible for choosing whether to pursue a foreclosure sale or to implement a loss mitigation option.
Default Risk – The Most Formidable Risk
Default risk is one of the most formidable financial risks that a mortgage servicer has to manage. In fact, mortgage default severity is significantly higher than other consumer loan defaults. Moreover, the changing nature of assessing consumer credit risk and declining property values has made it necessary to manage mortgage credit risk right from the early stages itself. Early identification of borrowers at risk is extremely critical now more than ever.
While mortgage servicers play a key role in identifying early stages default, partnering with a mortgage processing company gives them access to a host of back-office services the latter provides, saving significant amounts of time and money. Mortgage processing partners can also help servicers in improving the whole borrower experience and in retaining customers. In other words, they can help servicers manage their loan portfolios by offering end-to-end mortgage servicing support right from loan boarding to managing default operations and loss mitigation.
Here are a few aspects in which Mortgage servicing company can provide support to mortgage servicers especially in identifying early-stage default:
Help with Onboarding and Investor Reporting
Accurate information about mortgages is the foundation of servicing and enforcement. Evaluating the reliability of mortgage loan records includes two aspects. First are the legal requisites associated with enforcing mortgages, such as proper endorsements, physical possession of the collateral, and proper assignment of mortgages. The second involves proper loan business records, such as escrow histories, loan histories, and correspondence such as demand letters. It is the second aspect that is impacted most by loans and servicing data that transfer from one servicing entity to another. The process to ensure proper transfer is known as onboarding procedures. Diligent onboarding is one of the most essential steps in identifying early-stage defaults.
A mortgage servicing company can assist the servicer in introductory customer communications, setting up loan information on the servicing system, authenticating given information and validating whether all the needed documents and information are available in the loan file.
Another important element that mortgage processing companies can handle is investor reporting. When properly utilized, investor reporting can be the focal point for risk mitigation and oversight in the servicing process. The processing company can take care of investor reporting by preparing monthly reports, cash reconciliations, tracking interim servicing activity, and researching remittance activities. Proper investor reporting is also another pathway of identifying early-stage default.
Identifying and Engaging with Borrowers in Early Stages to Mitigate Loss
In the case of defaults, mortgage servicers engage with the borrower to determine the underlying reason for the missed payment or payments. This helps the servicers to understand if the borrower has the capacity to continue making payments. In today’s evolving financial landscape, mortgage processing partners can help servicers in improving borrower engagement and retention. Whether through greater investments in technology and talent, or streamlining back-end processes to improve the consistency and speed of the decision-making process, mortgage processing companies are doing a lot more to assist their servicers in prioritizing borrowers.
In recent years, web and mobile logins, as well as calls and other varied forms of outreach have been on the rise which has provided more opportunities to engage with borrowers. Mortgage processing companies are also leveraging technology to make their workers more effective at solving problems, particularly when it comes to loss mitigation.
In conclusion, mortgage processing companies help mortgage servicers to enhance the whole experience and especially help in identifying defaults in the early stages. They assist the servicer by being proactive in their communication to borrowers and providing timely services.
Peoples Processing is one such company that offers loan servicing support to Mortgage Servicers to identify early-stage defaults.
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