May 04, 2012
MBA NEWSLINK: Most of the talk about the recent servicing settlement involving states’ attorneys general and the five largest U.S. mortgage servicers focuses on what this means in the U.S. But what are some of the global implications of the settlement?
KARUN KHANNA: Global investors are major participants in the U.S. mortgage-backed securities market. More scrutiny of loan servicing and emphasis on quality of service is going to be a part of the new approach to servicing globally.
The settlement’s focus on preventing foreclosures requires early borrower intervention. Additionally, servicers must ensure investors be able to demonstrate that they have acted in their best interests as specified in the pooling and servicing agreements. Collaborative technology platforms that provide robust communication channels for working with delinquent borrowers and audit platforms that give investors assurance servicers have acted in their best interests, will become increasingly important to create a balanced solution for borrowers and investors.
NEWSLINK: Aside from the immediate effect of the settlement announcement, what are some of the longer-term implications?
KHANNA: Managing relationships with borrowers in a timely, fair and consistent manner will become paramount, especially when it comes to working with distressed borrowers. Servicers need to find the proper balance in meeting their contractual obligations to investors, adhering to national servicing standards, complying with federal and state laws, all while working with financially distressed borrowers under the watchful eye of the Consumer Financial Protection Bureau
There is no question that the cost to service mortgages will increase, especially as it relates to non-performing loans. As such, a bifurcated model will emerge to manage performing mortgages and non-performing mortgages. To support this model, pay for performance will become the norm in working with non-performing mortgages.
Organizations must re-examine their business processes to ensure they promote collaboration, transparency and accountability both within the servicer’s shop and in working with their third-party vendors, particularly law firms. Cloud-based computing--using both rules based and workflow driven systems--will be in high demand to increase efficiencies and control requirements. In this new industry environment, servicers’ will need to build and continuously measure against service quality measurements for their entire loan portfolio versus a focus on remediation based on audit results of a sample of loans.
NEWSLINK: The settlement specifically mentions the need for a home retention platform such as Hope LoanPort. That platform is powered by IndiSoft’s RxOffice, which puts IndiSoft right in the middle. How does the settlement directly affect IndiSoft?
KHANNA: IndiSoft is already experiencing an increase in demand for web-based portals designed to leverage the Hope LoanPort platform to establish real-time connectivity, enabling distressed borrowers to initiate and manage the loan modification process either themselves or through HUD-approved counseling agencies. Whether foreclosure options are presented by relationship managers/single-point of contacts with the servicer or in conjunction with HUD-approved counseling agencies, the technology platform provides a consistent and more efficient process to drive a home retention alternative for the affected borrower. And, the sooner options can be presented to the affected borrower, the more likely it is that there will be a resolution, whether it is a home retention or a home disposition decision.
Additionally, the AG settlement calls for greater oversight of the third parties working on behalf of the servicer. IndiSoft’s compliance and audit tool, RxOffice Compliance, provides servicers the ability to dynamically develop audit rules and business process workflows to ensure third parties meet contractual requirements as well as federal and state laws. We also believe there is a compelling opportunity for servicers to use RxOffice Compliance as a cost-effective internal quality control tool to meet the best-practice standards that are being modeled after the emerging national standards which are expected to be finalized by the CFPB in January 2013. This tool also allows key stakeholders, such as regulators, investors or insurers to review and/or refute the results of an audit, whether performed by a third party or internally by the servicer. Governance tools, such as RxOffice Compliance, will become an "absolute must" to facilitate prompt handling of multiple business process reviews by key stakeholders.
NEWSLINK: Do you expect additional services, such as services to speed up the decisioning process, to come into play as a result of the settlement?
KHANNA: Yes, the speed of decisions, both relating to home retention and home disposition, will continue to be affected by the timely delivery of accurate data and clear guidelines for fair and consistent borrower decisions, which are in the best interest of investors. Data standards and business processes enabled by collaborative technology platforms that engage key stakeholders in a timely and accountable manner will be absolutely vital to operate in this new environment
NEWSLINK: What would you want the biggest takeaway to be for servicers as a result of the settlement?
KHANNA: The time to act is now. Servicers need to start working toward more transparency, collaboration and accountability through an adaptive technology platform, which allows companies to not only quickly incorporate new business rules but rapidly change business processes as well. Servicers will need to fill in the gaps based on their investment in servicing systems of records with the help of complementary technologies to stay complaint with various regulations at optimal cost while gaining operational efficiencies. The good news for servicers is that by investing now with partners such as IndiSoft, servicers can proactively modify their business processes and technology platform to thrive in the new environment.