## Proactive Servicing is “Consumer-Centric Servicing”

#### How can mortgage servicers leverage this digital economy to create a better loan experience for borrowers, lenders, and investors?

By Peter Presland-Byrne, Advisor, Product, Default and Capital Markets

In August and September, real estate industry publications [were abuzz](https://www.zillow.com/research/forbearance-exits-inventory-2021-29931/) with predictions of an onslaught of borrowers exiting COVID-era home loan forbearances. Some reports forecasted the worst housing and financial crisis since 2008. Other reports said, and continue to say, forbearances are dropping weekly. Meanwhile, the Consumer Financial Protection Bureau (CFPB) [announced](https://www.nationalmortgagenews.com/news/forbearance-request-deadline-extended-for-government-loans-cfpb) that the deadline for forbearance requests on government loans, [originally slated](https://www.blackknightinc.com/blog-posts/forbearances-below-1-6m-for-first-time-since-start-of-pandemic/) for September 30, would be extended throughout the pandemic’s existence.

Fast forward to today: loans in forbearance are [indeed declining](https://nationalmortgageprofessional.com/news/loans-forbearance-continued-decline-december?utm_source=National+Mortgage+Professional&utm_campaign=3002115401-EMAIL_CAMPAIGN_2022_01_18_05_29&utm_medium=email&utm_term=0_4a91388747-3002115401-71318658) but not at the predicted breakneck speed. Whether the rampant omicron variant has applied the brakes or industry pundits underestimated the longer-term effects of the pandemic, particularly in the wake of expiring COVID-related benefits, many borrowers still need more time or a financial plan to stay in their homes.

Nonetheless, the continuing trials of existing borrowers don’t appear to be predictive of the entire market: December [new home permits](https://nationalmortgageprofessional.com/news/surprise-housing-starts-permits-rose-december?utm_source=National+Mortgage+Professional&utm_campaign=3002115401-EMAIL_CAMPAIGN_2) rose and [millennials are clamoring](https://nationalmortgageprofessional.com/news/millennials-are-still-powering-housing-market?utm_source=National+Mortgage+Professional&utm_campaign=3002115401-EMAIL_CAMPAIGN_2022_01_18_05_29&utm_medium=email&utm_term=0_4a91388747-3002115401-71318658) to buy their first homes.

It’s noisy and complex to say the least and each news article or industry report accompanies muddied predictions of the future. No one can accurately predict our “return to normal.” In fact, no one is certain what “normal” will, or should, look like in a wildly varying operating environment of the pandemic. One where:

- More homeowners have equity in their homes than in our last default cycle (2007-2012);
- The available housing supply is thin and [is fluctuating](https://nextmortgagenews.com/news/housing-inventory-falls-to-lowest-level-of-the-year/) as forbearance exit strategies and outcomes play out; and
- Interest rates are at a historical low (even with increases anticipated), impacting borrower retention.

The industry is at an inflection point. _Are borrowers able to get back on their feet enough to qualify for a loan modification strategy? Has a borrower been able to pay other crucial home-related expenses, such as property taxes, that could drive a particular forbearance_exit strategy? What’s the full picture of any borrower’s circumstance and available tactics to keep them in their home (and ultimately retain them as a client)?_

A _frictionless_ and _proactive process_ would empower servicers with the actionable information they need to guide the borrower to the best available path and support an extreme level of care for the consumer during an important and worrisome process.

**Breaking the holding pattern**

By unlocking actionable data and information about borrowers and related properties upfront in the cycle, the broader servicing picture is revealed – for both non-performing loans and performing loans. This means servicers have an early picture of the feasible paths forward for each borrower’s specific circumstances. And when we reveal a clear pathway, that translates into a better experience for all involved parties.

With a non-performing loan, it’s critical to engage with borrowers as early as possible. Delays and missteps can also cost the servicer time and money, and negatively impact investors. Yet traditionally, it takes time to gather the full picture and review the best and most feasible path forward: loan modification, property sale, deed-in-lieu or foreclosure.

Unless the borrower clearly wants to sell to realize their equity, if available, and move on, the servicer’s priority is keeping the borrower in their home. Realistically, when a homeowner is unable to make their monthly payments, many things come into play, and getting all the pertinent information can take time. **Imagine, then, servicers having a clear picture of how likely a loss mitigation strategy will succeed by knowing in one snapshot that both the borrower** **_and_** **the property are cleared for a loan modification.**

When a loan modification is not viable, the servicer can still use the borrower and property info to prioritize the borrower’s best interests in other scenarios. If they have equity in the home, servicers can counsel the borrowers on their options including selling their home, hopefully reaping some of the equity, and avoiding the taxing process and long-term repercussions of a foreclosure. The information may also direct a short sale as the best option.

While foreclosure may be an inevitable outcome for some loans, the traditional process can be fraught with inconsistencies that unnecessarily create additional trauma for the homeowner. Title issues can cause costly delays and legal challenges. The process requires detailed and specific steps at precise times before the start of the foreclosure process and every challenge or delay can require a process restart. Not meeting the legally required timelines gets expensive for servicers and investors.

Having both borrower and property data immediately available allows servicers to view all of the available paths at once, versus unearthing and reviewing issues one at a time, (i.e., income and credit, paying taxes, securing another lien on the property, or bankruptcy).

A re-performing loan means borrowers remain in their home and continued servicing and investor revenue. If foreclosure ends up being the only remaining option, having the complete picture that avoids starts and stops saves time, reduces servicer curtailments, and reduces borrower strain.

**Data-driven direction helps creates customer care**

While the idea of proactive servicing is not necessarily a revolutionary one, the ability to execute has held servicers back into the conventional reactionary reality, particularly with non-performing loans. If servicers could look at the broader picture immediately, they could view all of the potential paths at once and get a data-driven decision for loss mitigation (loan modification or short sale), or default (deed-in-lieu or foreclosure), with immediate direction.

This decisiveness gives the borrower the _consumer care experience_ needed during one of the most difficult periods of their life and also helps the servicer keep them in their network. Meanwhile, the servicer doesn’t spend valuable resources on a path that may never be a fit for the borrower and, by getting ahead of issues that frequently protract the default process, servicers can save time and legal costs spent on issues related to legal or vesting ahead of time.

**Flipping the model from reactive to proactive**

In a time of curtailed human interaction for months, humanizing the customer experience is more important than ever. In the mortgage servicing industry, it also can’t be reserved solely for the performing loan customers. Each loan, from end-to-end, has the information servicers need to drive decisions that lead to the best possible outcomes for everyone. Harnessing that information and getting those immediate decisions into servicers’ hands is vital to proactive “consumer-centric servicing.”