2017 - Servicing Management Magazine Issue Library

S The Magazine for Loan Servicing ProfeSSionaLS d voL. 28, no. 4 JanUarY - feBrUarY 2017

®

On The Up And Up With defaults at pre-crisis lows and rates on the rise, 2017 is looking like it will be a good year for servicing. page 30

24 ➤ Technology

The cfPB says servicers must update their technology - and the ivr is no exception.

26 ➤ Compliance

Practically all MSr transfer issues are solvable, but changing industry requirements can make it a challenge.

Contents

Servicing ManageMent The Magazine For Loan Servicing Professionals

FEATURES

14

Tips For Making Clean MSR Transfers

18

A Secret Ingredient With Big Potential For Servicers

Street address: 100 Willenbrock Road Oxford, CT 06478 Phone: (203) 262-4670 Fax: (203) 262-4680 Web: www.servicingmgmt.com E-mail: [email protected] Publisher & Vice President Michael Bates [email protected] Editor Patrick Barnard Phone: (203) 262-4670, ext. 234 E-mail: [email protected] Editorial Assistant Amanda Fava

There are four compelling reasons why online auctions are becoming the ‘secret sauce’ for servicers. by Rick Sharga

22

24

Office Manager Cheryl Samide

ADVERTISING SALES Account Executive Vanessa Williams (800) 325-6745, ext. 233 [email protected]

Zackin

18

CFPB Says Servicers Must Upgrade Technology ... and your IVR is no exception. by Brian Moore

26

The Final Servicing Rule: Highlights And Compliance Considerations A breakdown of the final rule and how it will impact servicers’ operations. by Vicki Vidal

Production Coordinator Sandra Minck Information Systems Manager Damase Caron

Ryan Solohub: Consumer Interest In The REO Market Keeps Growing Stronger As investors pull back from the REO market, REO management companies are looking for new ways to market directly to consumers. by Patrick Barnard

Creative Director Dawn S. Howe Graphic Designer Angel L. Hernández

14

The industry has yet to adopt a standardized approach to MSR transfers, but there are some basic procedures servicers should follow. by Pam Forrester

30

The ‘Knowns’ Of 2016... And The ‘Unknowns’ Of 2017 Servicers can expect to continue dealing with regulation in 2017, but the big unknown is the impact of a new administration. by Patrick Barnard

22

DEPARTMEnTS

6 Loan Administration • Citigroup to exit servicing by 2018 • Rising prices bring more homeowners into positive equity

24

Publications

President Paul Zackin [email protected] Servicing Management (ISSN: 1044-1077) is published monthly by Zackin Publications, Inc. Subscription: $48 per year. Advertising, Editorial, Production and Circulation offices are at 100 Willenbrock Road, Oxford, CT 06478; (203) 262-4670. Copyright © 2017 by Zackin Publications, Inc. All rights reserved; no reproduction without written permission from the publisher. POSTMASTER: Address correction requested: Servicing Management, 100 Willenbrock Road, Oxford, CT 06478

11 REO • LRES hires David Sober as VP of sales

12 Delinquency & Default • Default rates keep dropping, now near pre-crisis lows • Delinquencies on second mortgages continued to fall in Q3

33 Foreclosure • Foreclosure rate dropped 30% in 2016 • Banks cleared out swath of "legacy" foreclosure in Q4 Servicing Management d January - February 2017 3

 front office

What Can’t Be Dismantled Patrick Barnard

I

t has been a challenging time to cover the mortgage industry in recent weeks - especially in print - due to the potential for rapid regulatory rollback. As we were putting this issue to bed, it was announced that President Donald Trump had signed an executive order directing the Treasury secretary to consult with regulators about what needs to be done to reform the Dodd-Frank Wall Street Reform and Consumer Protection Act - an order that, in all likelihood, will lead to a significant wateringdown of the law, possibly even a repeal. Apparently, Trump is going to do whatever he can, administratively, to roll back Dodd-Frank without necessarily having to run the changes through Congress. The big question for mortgage servicers, of course, is whether the Trump administration will seek to dismantle the Consumer Financial Protection Bureau (CFPB), which was born out of Dodd-Frank and has enacted a set of regulations that have made the servicing of delinquent and defaulted loans much more expensive. A senior White House official, speaking with anonymity, told the press in the first week of February that “some of the rules [enacted under Dodd-Frank] may have even been unconstitutional, creating new agencies that don’t actually protect consumers” - an obvious reference to the CFPB and its single-leadership structure. However, some people close to the situation have said that it is more likely that the administration will keep the CFPB more or less intact but that there could be congressional oversight of its budget and spending. As of right now, whether the CFPB survives remains to be seen. The other big question - which also was not known as of press time - is whether Trump will seek to fire CFPB Director Richard Cordray, which the president can do at any time. A bill has been introduced in the Senate that would change the bureau’s leadership structure to that of a committee instead of a single director. That bill is essentially in reaction to the U.S. Court of Appeals for the District of Columbia Circuit’s recent decision in the CFPB-PHH case, in which the court concurred that the bureau’s leadership structure is “unconstitutional” and needs to be changed to a committee structure. Meanwhile, until something actually happens, all ser-

vicers can do is continue to abide by the rules that the CFPB put into place in January 2014 - and that have been significantly clarified in the final rule released this past summer. What I find interesting is the fact that not everyone in mortgage servicing is necessarily in support of regulatory rollback, particularly as it might apply to the CFPB and its mortgage servicing rules. Sure, there are certain aspects of the mortgage servicing rules that may be too onerous but at the same time, the industry has developed, at least to a degree, an “appreciation” for what these rules have accomplished. The reason, in my opinion, is simple: The rules clarify and codify the regulatory framework under which servicers operate, and the industry is appreciative of the fact that it was able to play a strong hand in the development of these new “rules of the road.” Larger servicers - in particular, those that have invested considerable time and money in new processes and systems - have come to embrace the new rules as a “competitive differentiator.” Some servicing execs have even said that they would be reluctant to abandon what has been put in place, simply because it has resulted in new operational efficiencies, especially in the area of performing loans, and much improved customer service. As of this writing, it would appear that the servicing industry is content to forge ahead with the regulatory framework that is currently in place. That means Servicing Management must forge ahead under this same assumption, as well. Will features such as the one on page 26 regarding the final mortgage servicing rule - or the one on page 14 regarding servicing rights transfers - become moot as a result of regulatory rollback? As of right now, anything is possible, but most agree that what should not - and perhaps cannot - be dismantled are the lessons learned during the worst housing meltdown in the history of the U.S. s

The big question for mortgage servicers, of course, is whether the Trump administration will seek to dismantle the Consumer Financial Protection Bureau.

4 January - February 2017 d Servicing Management

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 Loan administration

Citigroup Getting Out Of Servicing Following CFPB Action

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little over a week after the Consumer Financial Protection Bureau (CFPB) announced that it was fining two Citibank mortgage servicing units CitiFinancial Servicing and CitiMortgage Inc. - for “giving the runaround to struggling homeowners seeking options to save their homes,” Citigroup Inc. announced in late January that it plans to exit the mortgage servicing business by the end of 2018. In its complaint against CitiFinancial Servicing and CitiMortgage Inc., the bureau alleges that the mortgage servicing companies “kept borrowers in the dark about options to avoid foreclosure or burdened them with excessive paperwork demands in applying for foreclosure relief.” As a result, the CFPB is fining Citirichard Mortgage $3 million and is requiring the Cordray servicer to pay about $17 million in compensation to wronged consumers. In addition, it is requiring CitiFinancial Services to pay a $4.4 million fine and to refund approximately $4.4 million to consumers. “Citi’s subsidiaries gave the runaround to borrowers who were already struggling with their mortgage payments and trying to save their homes,” says Richard Cordray, director of the CFPB, in a release. “Consumers were kept in the dark about their options or burdened with excessive paperwork. This action will put money back in consumers’


pockets and make sure borrowers can get help they need.” The CFPB says when struggling borrowers who contacted CitiFinancial Servicing requesting assistance were offered deferments, however, the firm failed to offer them foreclosure relief options, as required under the CFPB’s mortgage servicing rules. By omitting this information, the servicer kept “consumers in the dark about foreclosure relief options,” the CFPB says. “When borrowers applied to have their payments deferred, CitiFinancial Servicing failed to consider it as a request for foreclosure relief options,” the bureau says in a release. “As a result, borrowers may have missed out on options that may have been more appropriate for them. Such requests for foreclosure relief trigger protections required by CFPB mortgage servicing rules. The rules include helping borrowers complete their applications and considering them for all available foreclosure relief alternatives.” CitiFinancial Servicing is also accused of misleading consumers about the impact of deferring payment due dates. Specifically, the bureau says CitiFinancial Servicing “misled borrowers into thinking that if they deferred the payment, the additional interest would be added to the end of the loan rather than become due when the deferment ended.” “In fact, the deferred interest became due immediately,”

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 l o a n a d m i n i s t r a t i o n the bureau says in its release. “As a result, more of the borrowers’ payment went to pay interest on the loan instead of principal when they resumed making payments. This made it harder for borrowers to pay down their loan principal.” CitiFinancial Servicing is also accused of charging consumers for credit insurance that should have been canceled or prematurely canceling that credit insurance for some borrowers. In addition, the CFPB says the firm sent inaccurate consumer information to credit reporting companies specifically, it is accused of incorrectly reporting some settled accounts as being charged off. CitiFinancial Servicing is further accused of failing to investigate consumer disputes about incorrect information sent to credit reporting companies within the required time period. “In some instances, the servicer ignored a ‘notice of error’ sent by consumers, which should have stopped the servicer from sending negative information to credit reporting companies for 60 days,” the CFPB says.

CitiMortgage is accused of requiring borrowers who had asked for assistance to send “dozens of documents and forms that had no bearing on the application or that the consumer had already provided,” the bureau says. “Many of these documents had nothing to do with a borrower’s financial circumstances and were actually not needed to complete the application,” the bureau says. “Letters sent to borrowers in 2014 requested documents with descriptions such as ‘teacher contract’ and ‘Social Security award letter.’ CitiMortgage sent such letters to about 41,000 consumers.” As a result, CitiMortgage violated the Real Estate Settlement Procedures Act, as well as the Dodd-Frank Act’s prohibition against deceptive acts or practices, the CFPB says. Just about a week after the CFPB took action, Citigroup announced its intention to sell off its mortgage servicing rights and get out of the servicing business completely. To help it make the transition, Citi announced that New Residential Investment Corp. has agreed to buy the mortgage servicing rights on a portfolio of Fannie Mae- and

Black Knight: ‘Tappable’ Equity Continues To Grow Due to rising home prices, about 1 million more homes in the U.S. returned to positive equity positions over the first three quarters of 2016, according to Black Knight Financial Services’ Mortgage Monitor report. As of the end of November, more than 39 million homeowners had “tappable” equity in their homes, meaning they had current combined loan-to-value ratios of less than 80%, according to the report. In total, these U.S. homeowners had about $4.6 trillion in tappable equity, which is within 6% of the peak seen in 2006. Only about 2.2 million homeowners - or about 4.4% of all homeowners with a mortgage - were in negative equity, which is the fewest since early 2007, according to Black Knight’s data. The report shows that homes in the bottom 20% by price are nine times more likely to be underwater than those in the top 20%. As Ben Graboske, executive vice president of Black Knight’s data and analytics division, explains, there is a distinct geographical component at work with regard to both the negative and the tappable equity sides of the equation. “The negative equity situation has improved substantially since the height of the Great Recession,” Graboske says in a release. “There are now just 2.2 million homeowners left in negative equity Ben Graboske positions - a full 1 million fewer than at the start of 2016. Whereas negative home equity was once a widespread national problem - with roughly 30 percent of all 8 January - February 2017 d Servicing Management

homeowners being underwater on their mortgages at the end of 2010 - it has now become much more of a localized issue. “By and large, the majority of states have negative equity rates below the national average of 4.4 percent,” Graboske says. “There are, though, some pockets where homeowners continue to struggle. Three states in particular stand out: Nevada, Missouri and New Jersey, all of which have negative equity rates more than twice the national average. Atlantic City leads the nation, with 23 percent of its borrowers underwater, followed by St. Louis at 20 percent. We also see that lowerpriced homes - those in the bottom 20 percent of prices in their communities - are nine times more likely to be underwater than those in the top 20 percent. “On the other hand, we’ve also seen a steady increase in the number of borrowers with tappable equity in their homes, meaning they have current combined loan-to-value ratios of less than 80 percent,” he adds. “There are now some 39 million such borrowers, with a total of $4.6 trillion in available, lendable equity. That works out to an average of about $118,000 per borrower, making for the highest market total and highest average per borrower we’ve seen since 2006.” However, Graboske points out that homeowners are tapping into their equity less than they used to during the pre-crisis years. Although total equity tapped via first-lien refinances hit a seven-year high of more than $70 billion over the first three quarters of 2016, it was still less than 2% of available equity to be tapped. s

Freddie Mac-backed loans with about $97 billion in unpaid principal balance for about $950 million. In addition, Citi has reached a deal with Cenlar FSB to service its remaining mortgages. The bank plans to transfer the rights for those loans beginning in 2018. The sale to New Residential, which is subject to regulatory approval, is expected to be complete in the first half of this year. Citi says in a statement that the agreements will reduce pretax results by about $400 million in the current quarter. Expense benefits will start to accrue in 2018. “The strategic action is intended to simplify CitiMortgage’s operations, reduce expenses and improve returns on capital,” the bank says in its statement. Citi has agreed to pay $28.8 million to settle the allegations brought by the CFPB. According to Citi’s fourth-quarter earnings statement, its total mortgage servicing rights portfolio was worth about

$1.6 billion as of the end of last year - down from $6.5 billion at the end of 2009.

RoundPoint Inks Deal To Service Assets Acquired By Point In yet another sign of growing diversification among mortgage servicing companies, RoundPoint Mortgage Servicing Corp. recently signed an agreement to manage assets acquired by Point, a financial technology platform that allows homeowners to, in essence, sell a piece of their homes. Point gives qualifying homeowners a fractional interest in their properties in exchange for a tax-deferred lump sum without interest rates or monthly payments. Within 10 years, the homeowner exits the agreement by either selling his or her home or buying out Point.

Servicing Management d January - February 2017 9

 l o a n a d m i n i s t r a t i o n Investors, meanwhile, can buy fractional interests in owner-occupied residential real estate via the Point platform. “This type of innovation is critical to the continued growth of the housing market,” says Kevin Brungardt, CEO of RoundPoint Mortgage Servicing, in a release. “We are delighted to have been selected as Point’s servicer, and we are looking forward to a long and successful relationship.” “As demand for our product continues to grow, it is clear that both the extent and diversity of RoundPoint’s asset management expertise make it the perfect partner for our unique product,” adds Eddie Lim, CEO of Point. “RoundPoint shares our mission to align our interests with homeowners and provide homeowners with a simple, fast and efficient experience, and our partnership enhances our ability to do just that.” Elissa Kline, product manager for Point, says RoundPoint’s up-to-date technology infrastructure was a plus when it came time for integration.

Mortgage Servicing Software Segment Forecast To Grow 14.19% By 2021 It’s well known that mortgage servicers have been playing catch-up in recent years, in terms of deploying new contact center and customer service software, but just how much will the mortgage servicing software market grow over the next four years?

According to a report from Pune, India-based research aggregator ReportsNReports.com, the global loan servicing software market will witness a compound annual growth rate of 14.19% from 2017 through 2021. This is mostly due to the emergence of software-as-aservice (SaaS)-based loan servicing software, which is faster and less expensive to deploy, the firm finds in its 62-page report. It also helps servicers better manage compliance. “The market share of SaaS-based loan servicing software is likely to increase by 2021 because of its lower implementation cost than on-premises loan servicing software,” the firm says in a release. “SaaS-based loan servicing software enables loan originators to manage the entire lending cycle, from origination to maturity, from any location with a secure Internet connection. SaaS-based loan servicing software is cost-effective, as the installation and maintenance of such solutions does not require any extra cost.” Key players in the global loan servicing market that are mentioned in the report include FICS, Fiserv, Mortgage Builder, Nortridge Software and Shaw Systems Associates. Other prominent vendors in the market include Altisource Portfolio Solutions, Applied Business Software, AutoPal Software, Black Knight Financial Services, Cassiopae, C-Loans, Cloud Lending, DownHome Solutions, Emphasys Software, FIS, Grants Management Systems, Graveco Software, IBM, Integrated Accounting Solutions, ISGN, Loan Servicing Soft, Misys, NBFC Software, Nucleus Software, Oracle, PCFS Solutions, Simnang, and Sopra Banking Software. s

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 REO

LRES Hires David Sober As VP Of Sales

I

ndustry veteran David Sober recently joined LRES, a provider of residential and commercial real estate services, valuations, real estate owned (REO) asset management, homeowners association (HOA), and technology solutions for the mortgage and real estate industries, as vice president of national sales. Previously, Sober served as business development manager at SingleSource Property Solutions, presently known as SingleSource, where he was responsible for developing and managing a sales pipeline across all of the firm’s core product verticals, including valuation, title, document management, REO asset management and property preservation. Prior to that, he served as senior business analyst and SM-SGP-0217-Navigating.pdf 1 1/4/17 3:12 PM pricing manager at Chronos Solutions, formerly Matt Martin

Real Estate Management, where he developed strategic merger and acquisition opportunities to promote horizontal and vertical growth, as well as assisted in the development, pricing and growth of new products and services, including HOA risk management, property preservation, auction and title. David Sober In his new role, Sober is responsible for managing and generating LRES’ sales and business development operations, developing solutions designed to support clients across multiple segments in the real estate industry, and cultivating long-term client relationships across the U.S. s

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 Delinquency & Default

S&P-Experian: Mortgage Default Rate Down Year Over Year In December

T

he national default rate on first mortgages increased slightly in December to 0.71% of all loans - up from 0.70% in November but down from 0.84% in December 2015, according to the S&P-Experian Consumer Credit Default Indices. The default rate on second mortgages fell to 0.41%, down from 0.48% in November and down from 0.84% in December 2015.


The index also measures the default rates for auto loans and credit cards. The bank card default rate in December was 2.95%, up 14 basis points from November. The auto loan default rate was 1.03%, up three basis points from the previous month. The composite default rate was 0.89%, up two basis points from November. “National average consumer credit default rates continue at low levels in an improving economy,” says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. “Auto and light truck sales were up each month since August as automobile consumer credit defaults held steady. Bank card sector defaults ticked up slightly in the last two months, reversing five months of flat to down reports. This may reflect rising retail since the spring and larger consumer credit extensions in October and November.”

The report shows that mortgage default patterns are stable, as well, Blitzer says. “However, this favorable picture is likely to be tested by rising interest rates,” he says. “Home mortgage rates rose by three-quarters of one percent since Election Day.”

ABA: Delinquencies On Home Equity Loans, Lines Of Credit Fell Further In Q3 Delinquencies on home equity loans and home equity lines of credit continued to fall in the third quarter, according to a recent report from the American Bankers Association (ABA). Specifically, the delinquency rate for home equity loans fell 11 basis points to 2.59% of all accounts, dipping further below their 15-year average of 2.85%. Delinquencies for home equity lines of credit fell five basis points to 1.16% of all accounts - just one basis point above their 15-year average of 1.15%.

Meanwhile, delinquencies on property improvement loans increased three basis points to 0.94% of all accounts. The report tracks delinquencies in 11 individual loan categories, also including credit cards. The composite delinquency rate increased slightly during the third quarter compared with the second quarter, meaning that although consumers are doing better at paying certain home loans on time, they got slightly behind on other types of loans. The ABA report defines a delinquency as a late payment that is 30 days or more James overdue. Chessen “The three-year trend of declining home equity delinquencies reflects a healthier housing market and rising home values,” says James Chessen, chief economist for the ABA. “Borrowers are on much firmer financial footing than they were just a few years ago, and greater equity gives them additional motivation to stay current on their obligations.” s

Mortgage Complexity... Clarified

MortgageOrb.com Servicing Management d January - February 2017 13

❖ Technology

Tips For Making Clean MSR Transfers The industry has yet to adopt a standardized approach to MSR transfers, but there are some basic procedures servicers should follow. by Pam Forrester

A

s high-yielding assets, mortgage servicing rights (MSRs) make for attractive investments, but also pose a challenge that can be best viewed as a game of risk and reward. Maximizing investment returns often hinges upon how well transfers are executed. MSR buyers and sellers should do all they can to ensure quality throughout the transaction and protect themselves from the financial, legal and even reputational risk associated with poorly executed transfers. Curing MSR transfer woes begins with establishing a quality management procedure that involves frequent auditing of Pam Forrester all servicing processes. By conducting proactive public records research prior to the MSR transfer, servicers can identify and solve critical problems in lien position, assignment chain and collateral documentation to ensure delivery of a clean file. Handoffs introduce risks for buyers and sellers The Consumer Financial Protection Bureau’s (CFPB) servicing rules provide detailed expectations for establishing, maintaining and verifying the content of the collateral document file, especially when a servicer transfers the MSR or prepares to proceed to default action. But time constraints and variations in servicers’ systems can make it challenging for banks and non-banks alike to meet these expectations. Because there are various ways to transfer data and images between servicers, there are no standard protocols, policies or procedures to ensure the accuracy and consistency of data exchange, nor is there a standardized posttransfer process for validating transferred data. Even with strong procedures in place, the net result can sometimes be incomplete or incorrect loan data. In certain instances,


things as simple as borrower contact or property address information can be incompletely or incorrectly translated from system to system, causing downstream issues. Take, for example, the case of a newly originated purchase loan in which the borrower’s address - as listed on the application - differs from the actual property address. In addition, the borrower’s work phone number appears in the home phone number field. Servicing rights are transferred to a new servicer, which inadvertently sends the welcome letter and monthly statement to the wrong address. The address mix-up ultimately sends the mortgage into collections, and worse yet, the servicer makes collection phone calls to the borrower’s place of employment, a particularly difficult issue with regulators and consumer groups. These types of data issues expose MSR buyers and sellers to financial, legal and reputational risk. Even the smallest data issue related to a servicing transfer can lead to incorrect information (or worse, no information at all) reaching the borrower. If these issues cause missed or late payments, adding to borrower confusion during a default situation, servicers could be exposed to additional risk and be forced to delay or restart loss mitigation or foreclosure efforts, usually at great cost. Data problems also have a direct impact on borrower satisfaction and servicer reputation. Some have criticized servicers for poor treatment of borrowers, in part because their responsibility toward the consumer often ends once the loan files have been transferred. Establishing a quality control process Given unlimited time and resources, practically all transfer issues are solvable, though perhaps due to changing industry requirements, this can be a challenge. A comprehensive oversight and quality control process can help pinpoint problems and allow for the efficient allocation of scarce resources to quickly triage time-sensitive issues. Assigning an independent group to oversee key components of the MSR transfer is a particularly effective way to manage this process, in part because it allows the establishment of a consistent point of contact and builds


❖ Technology rapport with the transferring servicer. Third-party certifications, such as ISO-9001, can provide external validation of a quality management system’s process approach, customer focus and commitment to continuing improvement. If certain aspects of the transfer appear to be running smoothly, testing of those areas can confirm that perception, so servicers can move on to more problem-prone aspects. Where oversight and testing uncover problems, resources can immediately be allocated to the most mission-critical issues. Resolving problems in the collateral document file Problems in loan transfer quality may stem, in part, from the originations process. Top loan defects identified through Fannie Mae’s post-purchase review process were the topic of discussion at a Sept. 20, 2016, training session on effective quality control offered by the government-sponsored enterprise. Among the observations made during the training session was that one of the many issues related to file submission is incomplete, improper or missing documentation. Remaining defects at the time of transfer are primarily data issues that could be cured by conducting upfront public records research with property reports that deliver a variety of property information related to ownership and encumbrance. Research prior to an MSR transfer allows servicers to identify potential gaps that could have a negative impact on borrowers, thus drawing attention from CFPB regulators. The most commonly used property report in the transfer due diligence process is the assignment verification report (AVR). An AVR is a cost-effective way to document a mortgage’s chain of assignment satisfying various regulatory requirements, where validation that the lien holder is the beneficiary of record is necessary to proceed. For example, U.S. Department of Justice settlements and CFPB mortgage servicing rules make clear the requirements for establishing, maintaining and verifying the contents of the collateral document file, especially as servicers sell and/ or transfer MSRs and prepare to foreclose. An AVR will validate the current beneficiary and identify breaks in the chain of assignment, allowing the lender to rectify any issues prior to MSR transfer. For instance, servicers looking to sell loan portfolios with missing documentation and inaccurate information in their servicing systems can engage our firm to identify and resolve any assignment chain issues prior to MSR transfer. Our firm can research the company’s extensive data repository, containing over 5.5 billion recorded land documents, and utilize our nationwide network of abstractors to retrieve copies of missing publicly recorded documents. This can help enable a servicer to perfect its collateral files, prepare and record assignments for the MSR sale correctly, and transfer accurate data to the new 16 January - February 2017 d Servicing Management

servicer. Not only do foreclosure actions require the lien holder to be the last beneficiary of public record, but lien releases also need chain of title perfection. Both processes can have direct consumer impact if not prepared timely and in accordance with regulatory guidelines. The AVR also has potential advantages to the acquiring servicer. The assignment chain provides insight into potential risk in payment processing issues and other irregularities based on the disposition of the previous servicers. Having insight into which servicer had possession of the servicing rights will help the receiver assess the due diligence needed when boarding the loan into its system based on the prior servicer’s reputation for an accurate and competent process. When the mortgage servicing transfer process does not include proper due diligence that the transferer or seller has provided the transferee with a clean loan file, the deleterious impact to the borrower may result in missed loan payments, improper foreclosure action, credit reporting errors and, ultimately, CFPB punitive action. A thorough quality control process is one of the key steps in the mortgage servicing transfer process. If property reports, such as AVRs, are not utilized to validate that the loan file is defect-free, assignments may be recorded incorrectly and inaccurate data will be transferred to the new servicer, potentially exposing both servicers to financial and reputational risk. It’s worth protecting yourself MSR transfers have been a necessary and lucrative part of the servicing process. However, given the regulatory changes that servicers will continue to experience and the increased scrutiny by regulatory agencies, it will become more difficult to protect all parties engaging in these transactions. This difficult aspect of the servicing process will require all sides to be extremely vigilant in providing complete, correct and detailed data so that all parties can meet the required strict guidelines. It is worth considering the intricacies of the new, enhanced requirements and also the quality of one’s internal transfer procedures. It has become necessary to either build safeguards to provide both complete and accurate data delivery or partner with a vendor that will provide the necessary quality control processes and delivery safeguards to help eliminate the common and costly errors in the industry today. Whatever approach is taken, either internal operations or external vendor partnership agreements, these safeguards are necessary at all levels of the loan servicing process to ensure a full, complete and compliant MSR transfer. s Pam Forrester is vice president and division operations manager for First American Mortgage Solutions. She can be reached at pforrester@firstam. com.

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❖

REO ManagEMEnt

A Secret Ingredient With Big Potential For Servicers There are four compelling reasons why online auctions are becoming the ‘secret sauce’ for servicers. by Rick Sharga

F

ew outside of his sphere know the name of Michael James “Jim” Deligatti, a true American pioneer and success story who passed away late last year at the age of 98. He was not known for a creation that improved mankind - at least, not exactly - but he did create something 50 years ago that became a global icon: the Big Mac. Deligatti was a McDonald’s franchisee in the Pittsburgh area who wanted a menu item to compete with the signature double-decker offerings from competitors such as Bob’s Big Boy. He came up with the “meal on a bun” later dubbed the Big Mac, and within a year, it was on McDonald’s menus across the country. The company has since sold an estimated 400 billion Big Macs around the globe, with 1.5 million consumed each day in the U.S. alone. Devotees will tell you that the sandwich’s success has less to do with the two all-beef patties and sesame seed buns than with what Deligatti called its “special sauce.” This recipe remains as closely guarded a secret as Coca Cola’s formula - and so far has eluded Wikileaks and even Russian hackers. Deligatti had a Big Mac at least once a week and lived to a very ripe old age, despite the 25,000 or more of the iconic burgers he claimed to have consumed over the years. The takeaway here is twofold and obvious: 1) McDonald’s secret sauce had an extraordinarily positive effect on the company’s global success, and 2) the secret sauce apparently has the ability to prolong life, as anyone who consumed that many hamburgers would, under most circumstances, never have survived for almost a century. There is a special sauce for mortgage servicers, too - and though it is not a secret, it is just starting to be fully appreciated. Online auctions are an ideal vehicle for servicers to use after they have made the decision to


foreclose on a property. Although not guaranteed to prolong a servicer’s life, per se, using this technology can mean far better results in terms of time, costs and the overall bottom line. Our firm, for instance, sold nearly 60,000 homes in 2016. The company is seeing industry trends that favor rapid disposition of properties and pricing that allows investors to make a profit by flipping a home or converting it into a rental unit. Recently, more real estate owned (REO) properties are being put up for sale immediately after courthouse foreclosure sales in “as is” condition and sold via online auctions simply because technology makes it possible to move them quickly and avoid unnecessary eviction, repair and holding costs. What follows are four compelling reasons why online auctions are becoming the secret sauce for servicers - and a standard item on their menus. 1) Reduced sales cycle times REO sales cycles are slow - typically six to 12 months (longer in some states) - with lost revenues an unfortunate part of the formula. Holding costs, evictions, inspections, repairs, re-inspections, marketing costs and the cost of tying up capital that could otherwise be put to better use combine to make long servicer ownership periods extraordinarily expensive. Reducing the sales cycle by using auction technology to target interested investors much earlier may all but eliminate the negative financial impact of carrying costs for most REOs and reduce some of the human resource requirements for servicers, as well. By moving more properties more quickly, and reducing the amount

of property management and property preservation tasks required, servicers can redeploy staff to do more strategically important work. 2) Speed to market benefits investors Properties deteriorate quickly and deteriorate even more over time, despite the best efforts of servicers to keep them up. Even if the exteriors are maintained something increasingly required by governmental entities to avoid penalties - the interiors can experience dramatic wear and tear. This happens not just because of time, but also because of squatters, thieves and vandals. Investors know these things, and they realize that if they can obtain REOs sooner rather than later, they can expect to save large amounts of money when it comes to making them fit to sell or rent. In addition, they can bring them to market sooner and begin seeing cashflow much more quickly. Both of these factor into the investor’s calculation of fair market value - less repair cost and faster time to market mean that an investor doesn’t need as large a “discount” in order to achieve a reasonable return on investment. Online auctions offer ease, convenience and speed,

which is a very attractive combination for both individual and institutional investors. And the development of mobile solutions allows investors to bid on and buy properties wherever they happen to be, using virtually any device. Real estate transactions are increasingly moving online because that’s where the buyers start their search for investment properties. And the savvy investors know to look to online auction sites where they can find thousands of properties not listed on the local MLS - and to find investment opportunities beyond their local markets in other cities and states. 3) Neighborhoods stabilize more quickly Any real estate appraiser will tell you that neighborhood condition is paramount when evaluating individual properties. Even a nice home suffers when surrounded by others in dodgy conditions. Foreclosure properties have a negative impact on the values of other homes in the neighborhood. And when these homes are left vacant through a long, drawn-out post-foreclosure process, they also become potential safety hazards. So, getting these properties back to pristine condition and stabilizing the neighborServicing Management d January - February 2017 19

❖ REO

ManagEMEnt

hood is of prime importance to everyone who lives there and the legislators and regulators who represent them. Online auctions provide a high-speed disposition alternative for servicers. They move properties within days or weeks rather than months or even years, depending on the jurisdiction. Most investors spend money to rehabilitate REO properties in order to sell them at the highest price, or secure the highest-possible rent. In either case, a vacant property is removed from the neighborhood and replaced by a home in excellent condition, occupied by either a new homeowner or responsible renter in much less time. This compressed timeline benefits the servicer, the investor, the new buyer/renter and the neighborhood.

To recap, with their speed and ease of use, online auctions benefit multiple audiences. Servicers benefit by selling properties more quickly - often at a higher price - while simultaneously reducing holding costs. Investors benefit by having access to a broader number of properties than what’s typically available in a local market, being able to acquire the properties more quickly and easily and often being able to put their capital to work almost immediately. Distressed borrowers can benefit by retaining occupancy of the family home and minimizing disruption to their family. And the local community benefits by keeping neighborhoods more intact, safer and in better overall condition.

4) Renters are often already living there There are few things worse for a family than losing a home to foreclosure. Everything changes, particularly for the children, and this brings pain and stress for the parents. When a family is forced to move, friendships cultivated over years are affected. It’s likely that children will have to attend different schools and will no longer be able to participate in familiar youth sports programs. Additionally, families accustomed to the single-family-home lifestyle are likely to find themselves relegated to apartment complexes, with all of the accompanying changes and adjustments (starting with reduced living and storage space) they involve. So, even though a family finds itself in foreclosure, it is very likely its members are not eager to move if they can find a way to stay in place. For investors, this means two things right off the bat. First, while the family is living in the home, and if they believe there’s a chance they can stay on as tenants after a foreclosure, they often maintain the property to the best of their ability, meaning that servicers and investors are less likely to deal with rampant property destruction. Second, there’s a chance for investors to put their capital to work almost immediately by converting the home into a rental unit, with the borrower staying in place as a renter. Unlike most traditional real estate transactions, online auctions of REO properties often take place while the borrower or another tenant is still occupying the property. For the right investor, one who understands how to work through the details of this sort of situation, this is an ideal scenario: the opportunity to buy an investment home at a fair price and immediately turn it into a profitable cashflow property.

What’s involved in online auctions? Like so many other things that can be done online in today’s world, auctions can appear to be deceptively simple. Build a website, import properties, set prices and start taking offers. Congratulations! You’re now the eBay of real estate! Easy, right? Not exactly. There’s a reason that none of McDonald’s competitors ever successfully cloned the Big Mac; and there’s a reason why online auctions require special skills and expertise. Today, there are a number of companies providing online auction services. Servicers and REO managers need to do their due diligence before partnering with an online auction company to accelerate property disposition. There are a number of important questions to ask: Does the company have a successful track record? How many properties has it sold? Who are some of its other customers? How simple or complex is the process for uploading assets onto the auction site, and is there a well-trained staff available to provide as much assistance as needed? Can the partner provide guidance on property valuation, setting reserve pricing and auction strategy? Servicers will want to select a partner with technology solutions that are sound, secure and user-friendly. With more and more online real estate traffic going mobile, the auction company should have a website built using responsive design technology (which allows the website to reconfigure itself to fit on whatever device the buyer is using), as well as apps that are native to popular iPad, iPhone and Android devices. As technology providers, online auction companies need to be able to provide the anywhere, anytime, any device solution that today’s investors demand. It’s also critical that the auction provider aggressively market the properties to potential buyers in local, national and international markets. Billions of dollars are pouring into U.S. residential real estate from foreign investors looking for a safer alternative to other investment options. Online auctions that are supported by strong marketing

Like so many other things that can be done online in today’s world, auctions can appear to be deceptively simple.


can attract both national and international buyers and provide unprecedented exposure for a servicer’s REO assets. Finally, servicers should look at what the buyer’s experience is when participating in the auction process, as the transaction will have an impact on their own brands, as well as that of the company executing the online auction. How easy is it for buyers to sign up for an account? To register for and bid in an auction? Is there a well-trained customer care team available to help guide buyers through the auction process itself and to overcome some of the obstacles that inevitably come up in REO transactions? Online auctions are undeniably effective and are surprisingly easy for buyers to participate in. And, although they look simple, looks can sometimes be deceiving. There’s virtually no transaction more complex than a real estate sale, and the nature of REOs almost guarantees an even higher level of complexity. In order to provide the ease, speed and efficiency of property disposition to servicers and REO asset managers, online auction companies

The way the mortgage industry deals with foreclosed properties has been permanently changed with the advent of online auctions. need to excel from an operational standpoint, be able to consistently and reliably execute, and make sure that everything they do meets their - and their clients’ - regulatory and legal compliance requirements. There’s a lot that goes into making this “special sauce.” Although not everyone will necessarily remember Jim Deligatti’s name, most know his creation. His secret sauce led to a financial bonanza like few others in history, but it had to be adopted by McDonald’s system-wide. Will online auctions have a similar positive impact on the way servicers and REO managers conduct their businesses? The way the mortgage industry deals with foreclosed properties has been permanently changed with the advent of online auctions - and for all the right reasons. It’s not just about doing more with less as a servicer; it’s not even just about achieving better financial results. In the larger picture, online auctions offer a means to do those things, but they also represent a meaningful opportunity to create a healthier housing market, both for those who rent and for those who buy. That is what happens when you can attract capital to places where it can do the most good - and not just for the investors. Online auctions enable investment and are a catalyst for real and immediate positive change in the nation’s critically important housing industry. s

®

2017

Directory of

Mortgage Servicing Vendors Coming in June Deadline: May 19th

For more information, contact Vanessa Williams at: [email protected] (800) 325-6745, ext. 233

Rick Sharga is executive vice president of Auction.com, an online real estate marketplace serving major financial institutions, institutional investors, individual consumers and real estate professionals. He can be reached at [email protected]. Servicing Management d January - February 2017 21

❖ ExEcutivE

profilE

Ryan Solohub: Consumer Interest In The REO Market Keeps Growing Stronger As investors pull back from the REO market, REO management companies are looking for new ways to market directly to consumers. by Patrick Barnard

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yan Solohub is director of asset management and real estate services for Altisource Portfolio Solutions. Servicing Management recently interviewed Solohub to learn more about recent trends in real estate owned (REO) marketing, as well as what strategies Altisource is using to more rapidly liquidate REOs compared with other REO management companies. SM: Have you seen a slowdown in the auctioning/sale of REO properties in recent months? If so, what factors are causing this? Is it because REO prices are rising? If so, why are they rising? Solohub: Recently, we’ve seen a slight decline in the number of online auctions and non-time-limit sales. The primary driver is the industry-wide decrease in foreclosures, and the secondary driver is seasonality. Declining ryan Solohub mortgage delinquency rates and improving economic opportunities in states hardest hit by the recession have reduced the total number of REO properties entering the marketplace. To offset the impact of this overall decline and maximize sales performance, our firm is continuing to invest in new technology and costefficient processes to deliver robust services for servicer and bank clients. When it comes to pricing, we’ve noticed a significant increase in the amount of capital invested in local communities by individual homeowners, real estate investors and even lenders. This is driving up home values and revitalizing communities, which is attracting a more diverse


buyer pool to the REO marketplace. Historically, financial institutions were the only major players in the REO market, but now, innovations in the online auction sector and a broader array of financing options for individual home buyers and smaller-scale investors have brought more participants to the REO market. With more investors - both traditional institutional buyers and non-traditional or consumer participants - now present in the market, demand for REO is stronger than ever. SM: What has changed with the single-family rental (SFR) market in the past year, and how is that impacting REO sales? Solohub: Over the past few years, the SFR market has been thriving. With interest rates on the rise and financing hurdles still a challenge for many prospective home buyers, the number of individuals deciding to rent will likely continue to grow. This shift is something we believe investors will capitalize on nationwide by purchasing REO and SFR properties. Recently, we’ve seen strong interest from SFR investors through Investability, which gives investors access to exclusive SFR inventory and institutional-quality data in markets across the country. Because of platforms like Investability, SFR investors can feel confident investing in markets anywhere in the U.S. by utilizing a wide array of tools integrated into our auction platform, Hubzu.com, to target properties that meet specific financial criteria and are projected to yield a healthy return on investment. SM: Some say the reason REOs are moving more slowly now is because - as housing has healed and REOs have diminished in quantity - we’ve reached the “bottom of the barrel” in terms of the condition of the properties available. Is there some truth to this? Or is the REO property market more transient than people realize? Solohub: Following the housing crisis, there was an unprecedented, high volume of REOs in the market, and traditional institutional buyers took advantage of the opportunity at that time. Although supply has decreased, that doesn’t necessarily mean the quality of the properties available is poor. That is, today’s home buyers and real

estate investors can purchase either a turnkey property for market value or one requiring additional work for a reasonable price and then complete minor renovations to generate a return on their investment. SM: How are REO management companies, including Altisource, marketing REOs to consumers? What is the strategy for stimulating consumer interest in these properties? What new strategies are real estate agents using to sell REOs to consumers? Is there enough interest among consumers to counterbalance the drop-off in investor activity? Solohub: Over the past five years, we’ve seen the real estate buying industry evolve into a more technology-driven market. Although traditional activities like open houses and targeted marketing campaigns still generate a significant amount of interest in real estate, we’re seeing more and more consumers heading to the Internet to search for and buy properties. Since 2009, Hubzu has facilitated the sale of over 170,000 homes via a transparent online sales and auction process. For that reason, we’re combining technology with many of those traditional marketing activities, as well as providing access to customer service representatives to enhance our buying experience. By leveraging our online auction platform and providing buyers and their agents with all of the information and functionality needed to purchase a property virtually, our firm is developing a user experience that is more efficient and effective. This includes replacing the traditional “onsite walk-through process” with 3-D virtual tours (where permitted by the seller and subject to vendor coverage), to providing school district information so consumers feel like they’re walking through the property and the neighborhood without having to leave the comfort of their homes. Additionally, we’re working with real estate agents to promote REO properties and educating consumers on the overall auction home buying process. A common misconception regarding the REO transaction process is that prospective buyers have to choose between using agents or auction platforms. We’re also including more robust market data in our marketing campaigns and integrating RentRange data into our auction platform to empower consumers in making well-informed decisions when it comes to purchasing properties. Additionally, Hubzu users can now place bids on homes that are contingent on obtaining the U.S. Department of Housing and Urban Development’s 203(k) rehabilitation financing that allows a single mortgage to include the home purchase price and renovation costs.

SM: I understand there are now more financing options for home buyers for auction properties. Can you explain? Solohub: Historically, the all-cash model has been associated with the REO market, but that is no longer the only option. In today’s market, auction platforms offer mortgage contingency and rehab financing options, such as the Federal Housing Administration 203(k) loans that bundle the home purchase price with renovation costs into one single mortgage. A wider array of financing options is creating an opportunity for consumers to enter this market in a way that previously wasn’t possible. SM: How do you see the REO market continuing to evolve over the next year? Solohub: According to a poll of mortgage professionals that we conducted at September’s Five Star Conference and Expo in Dallas, in the coming year, new financing options from lenders will continue to broaden the buyer pool for auction properties, increasing consumer interest in the REO market. Real estate agents may also likely promote auction properties to cater to growing consumer interest and online real estate transactions. Finally, better market data provided by companies such as Investability and RentRange will continue to play an increasing role, as prospective investors rely on these insights when making their purchase decisions. s Servicing Management d January - February 2017 23

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Technology

CFPB Says Servicers Must Upgrade Technology ... and your IVR is no exception.

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by Brian Moore

hen Consumer Financial Protection Bureau vice is not desired or possible, to efficiently route the caller to (CFPB) Director Richard Cordray addressed the person or department best equipped to assist him or her. the Mortgage Bankers Association’s conFrom a business perspective, successfully enabling these vention in October 2016, he reminded the functions drives different but complementary benefits. Makstanding-room-only crowd that although significant progress ing it possible for borrowers to self serve saves a tremendous has been made since the financial crisis devastated the amount of money - on the order of $6 to $12 per call - as mortgage industry and the borrowers it serves, “outdated long as the caller is able to complete his or her task in the and deficient servicing technology continues to put many IVR. Helping them get to the right person when required imconsumers at risk.” Although he did not specifically menproves borrower satisfaction, while still cutting some costs tion problems with interactive voice response (IVR) systems, spent on misroutes. complaints submitted to the CFPB, such as the following exAt a minimum, a mortgage servicer’s IVR should allow amples, document a high level of frustration on the part of borrowers to access the most commonly requested informaborrowers when they call for service on their loans: tion and execute frequently occurring transactions. “I tried calling the number listed on the notice to make Our firm recently completed a benchmarking survey of a phone payment, but the automated phone system would the IVRs of large servicers and found a wide variance in the not recognize my social or loan number I provided and I availability of self-service options for these basic functions. got stuck in a loop. I have wasted a considerable amount of Although all of the servicers studied provide access to time trying to resolve this issue.” information about loan balances and support the ability to “What bothers me more than spending 45 minutes fixmake a payment by phone, only two allow the borrower to ing a non-issue is how difficult XYZ’s phone system was. enter a promise to make his or her payment on a future date. Their system did everything possible to keep me from By not accepting a promise to pay in the IVR, a serspeaking to a human being. By the time I eventually vicer drives costly transfers into the contact center. If spoke to one, he was very kind and helpful. I pressed callers are ready to make a promise but unwilling to ‘0’ over and over, much to the automated system’s wait for an agent, a servicer may also find itself making dissatisfaction. Shouldn’t it be easier to speak to a unnecessary outbound collection calls a few days later. human being?” Filling in gaps like this in an IVR’s self-service func“I called back and searched through the menus for tions should be the first item in a servicer’s “get well” the escrow department. After another 30 minutes on Brian Moore plan; however, not all callers can or should be hanhold, I hung up in frustration. Altogether, I have spent dled in automation - some need to talk to a human. approximately two hours on the phone and on hold, with A borrower in good standing looking to open a home eqno resolution for this problem in sight.” uity line of credit and a distressed borrower hoping to avoid If your operation is getting complaints like these, fixing foreclosure may call the same toll-free number, but they the problem needs to be a priority. Continuing his remarks, clearly need to speak to different people. Discovering caller Cordray made it clear his agency (although its future now intent and routing them to the right resource is the next big seems somewhat uncertain under the new administration) challenge servicers need their IVRs to handle. will not accept the status quo. “To spur needed improvements in servicer compliance, Mastering call routing we will be insisting on specific and credible plans from serDriven by ubiquitous mobile technology (think speechvicers describing how their information technology systems enabled apps such as Siri, Alexa and Google Now), today’s will be upgraded and improved to resolve these issues efconsumers are conditioned to lead their interactions with fectively,” Cordray said. technology - not the other way around. They want to simply Consider the following a “crawl, walk, run” plan for imask for what they need and have the technology deliver. Yet, plementing an IVR your borrowers (and the CFPB) will love. most IVRs still use outdated touch-tone technologies that force customers into complex, hard-to-navigate mazes. Too Start with the basics often, callers get lost in menus, become frustrated and zero An IVR has two primary purposes in mortgage servicing. out, only to be routed to the wrong destination. The first is to allow borrowers to find information about their Speech-based IVR systems - particularly those enabled for loans or execute a transaction without requiring the assisnatural language understanding (NLU) - are a great way to tance of a contact center agent. The second is, when self serreduce misroutes and provide a more satisfactory customer 24 January - February 2017 d Servicing Management

experience. NLU frees callers from the confining nature of limited prompts, allowing them to simply express their desire in their own words and be directed accordingly. For example, if in response to the IVR asking, “How can I help you today,” the borrower responds, “I’m interested in refinancing my mortgage,” an NLU-enabled IVR would know to send him or her to a credentialed mortgage banker. On the other hand, if the caller responds, “I can’t make my mortgage payment,” the IVR would get him or her to a loss mitigation specialist. Obviously, implementing such a system is more involved than simply changing an IVR’s greeting prompt, but if servicers are serious about upgrading their IVRs to enable a caller-led experience, there are a few design best practices, as follows: Greet callers with open-ended phrases The limiting nature of touch-tone IVRs forces callers into silos where they must choose from limited options. For example, a customer may want to change his or her billing address but only hears the options “billing” and “technical support” - neither being what he or she is seeking. Don’t guide callers to popular responses Providing example responses, such as “You can say things like ‘refinance’ or ‘what’s my payoff,’” causes callers to ask for things they aren’t actually interested in, driving misroutes. Use as few words as possible Short and concise prompts limit confusion and avoid wasting the caller’s time. For example, extra words, such as “Please listen carefully, as our menu options have changed,” add no value and ultimately irritate callers. Don’t make borrowers repeat themselves Once a system has discovered the borrower’s intent for the call, it can then pass this information to the contact center rep, through either computer-telephony integration or a whisper message. Nothing frustrates callers more than having to say why they are calling all over again. Finally, to avoid one of the most frequent complaints, if borrowers authenticate themselves in the IVR, do not make them do so again when they reach an agent. Once the IVR is handling common requests and routing calls to the best resource, it’s time to take the borrower’s experience to the next level - through personalization. Making it personal The most modern IVRs draw on readily available information (such as customer phone numbers, browsing and interaction history, transactions, and more) from backend systems to anticipate customer needs before even saying “hello.” Borrowers notice the difference. In fact, research shows that when IVRs are more personalized, callers perceive the system as more effective. Examples of IVR personalization include the following:

Personalizing your greeting Using automatic number identification, an IVR can easily compare phone numbers from incoming calls against a servicing system. Then, text-to-speech technology makes it easy to greet callers by name. (“Hi, Matt. Thanks for calling.”) Up-leveling customer convenience As evidenced by the CFPB complaint narratives, borrowers don’t like to wait on hold for the next available agent. To avoid this, an IVR can simply offer to call the customer back when the next agent becomes available. If the borrower is already working with a relationship manager on a loan modification, the callback can be queued for that specific agent. Adding more context to every call The most intelligent IVRs go beyond quickly identifying who is calling and can actually anticipate the reason they are calling, too. By reviewing recent browsing, interaction and transaction history, IVR technology can accurately infer customer needs and help them get the answers they need even faster. Remembering customer preferences Just as today’s IVR technology can work with a servicing system to determine who is calling, it can also identify and store things such as a customer’s preferred language, payment method and even communication channels allowing the servicer to create an even more personalized experience, each and every time a borrower calls. What’s it worth to you? Even if a project has the imprimatur of a compliance requirement, if it’s going to get resources, there needs to be a business case. Luckily, along with improvements in customer satisfaction, modernizing an IVR will drive significant hard-dollar savings. A major servicer recently upgraded its IVR to replace a DTMF menu interface with an NLU-enabled speech recognition experience. The old IVR received more than 1.7 million calls in 2014, and only 48% of those were fully handled or “contained” within the system. The other 52% required a transfer to a contact center agent. Using a conservative cost of $6.50 per agent-handled call, the servicer estimated it had spent nearly $6 million handling the transfers. When the new NLU IVR system went into production in 2015, containment increased to 61%, projecting savings of over $1.5 million in the first year and $7.5 million over the next five years. Although containment is only one measure of IVR benefit, it provides a strong financial incentive to pursue the improvements previously outlined. If making these changes to an IVR could also help meet the CFPB’s expectations for upgrading servicing technology, that’s all the better. And if these changes delight borrowers instead of driving them to complain, it will be a win-win-win investment. s Brian Moore is a senior principal at Nuance Communications, where he advises clients in retail banking, mortgage and other lines of lending on customer experience, collections strategy and regulatory compliance. He can be reached at [email protected]. Servicing Management d January - February 2017 25

❖ ComplianCe

The Final Servicing Rule:

Highlights And Compliance Considerations

A breakdown of the final rule and how it will impact servicers’ operations by Vicki Vidal

T

he Consumer Financial Protection Bureau (CFPB) has adopted its final servicing rule, which was designed to add to, strengthen and clarify consumer protections outlined in Regulation X (the Real Estate Settlement Procedures Act) and Regulation Z (the Truth in Lending Act). Here are some of the highlights and a few thoughts about how servicers can get ready to implement the rule. However, please note that readers should refer to the CFPB final rule published Oct. 19, 2016, for more complete information.

provisions, most notably the loss mitigation provisions. Servicers must evaluate a confirmed successor for loss mitigation, even if he or she does not assume the loan. However, owners of such loans still have discretion to determine what loss mitigation options are available to a confirmed SII. In many cases, a confirmed SII who does not assume the loan cannot accept a change to the contract that would otherwise be available through a loan modification. Even before an SII is confirmed, certain protections apply. For example, if a loss mitigation application is received from an unconfirmed successor, Effective date the servicer either can begin the evaluation process Most of the final rule becomes effective on Oct. at that time or must preserve the application and 19, 2017, but provisions dealing with successors related documents that are received until the SII is in interest and periodic statements for borrowers in confirmed, at which time, it must evaluate the apbankruptcy have an 18-month implementation periplication. This requires that servicers have a process Vicki Vidal od and become effective on April 19, 2018. Twelvein place to track the status of SIIs and retain and and 18-month implementation periods are a welcomed track any documentation received prior to confirmation. change from the shorter implementation time frames proAlso, servicers are responsible for communicating with posed. However, time will still go by quickly, and there is potential successors and helping them get confirmed. The much to get done within that time frame. Servicers must final rule details what communications must transpire begin now to develop new policies and procedures to between servicers and potential successors and what implement the rule; work with their technology providers documents a servicer can and cannot request to confirm and other third-party providers, such as print vendors, to a potential successor’s identity and property ownership. help ensure the implementation is timely and effective; Servicing compliance experts must thoroughly understand and test any changes to technology and internal and exterand educate servicing staff about documents that are nal processes. necessary to confirm property transfers or co-ownership rights for situations of death and divorce. Note that those Successors in interest requirements may differ by state. One of the most significant amendments to the existAlthough a servicer’s obligation to communicate with ing servicing rule is the CFPB’s decision to treat confirmed potential successors is based on the servicer’s actual successors in interest (SIIs) as borrowers under Regulaknowledge of a potential successor, some nuances remain. tion X and consumers under Regulation Z. The final rule For example, if a servicer locates a proof of insurance coventitles certain confirmed SIIs to servicing disclosures, erage page identifying an insured person who is not the including, but not limited to, periodic statements, Early Inborrower, does this constitute knowledge of a potential tervention (EI) notices, escrow statements and adjustablesuccessor and trigger future communications by the serrate mortgage notices - provided another borrower or vicer with that person? confirmed SII is not receiving them. But, even if anFrom a technology and operations perspective, serother party has received the notices, a confirmed SII may vicers must be able to identify and retain contact informareceive duplicative information through an information tion about all potential successors and notify them when request, error resolution request or pay-off request. Thus, an SII’s identity and property interest are confirmed or reservicers must develop policies and procedures to guide jected. Servicers must also have a process in place to dethem in those cases when confirmed SIIs make requests termine which notices, if any, will be sent to a confirmed for duplicative information, including broad requests to SII or continue to be sent to the borrower. If the original be a second recipient of notices or splitting notices among borrower is still a party to the loan, servicers will likely various confirmed SIIs. continue sending notices to the debtor. However, servicers Along with the receipt of specific disclosures, conshould be prepared for confirmed SIIs who are not receivfirmed successors are also entitled to the timelines and ing notices to ask for duplicates through the information protections provided by certain Regulation X and Z request process. Servicing Management d January - February 2017 27

❖ ComplianCe For now, servicers should decide how they will process these requests and what information should and should not be sent to a successor. Given that some information, including location and financial information, should not be transmitted to another party, servicers must have a process in place to adjust the mailing address and other personal information. Also, more than one SII could submit a loss mitigation application, and each one would be subject to loss mitigation evaluations. Technology functionality that can track and maintain SII information on the servicing platform will help servicers manage these varied and complex requirements.

that servicers are barred from foreclosing or completing key legal steps prior to foreclosure if the borrower submits a timely and complete loss mitigation application, albeit after the first notice or filing for foreclosure has occurred. A significant takeaway here is that servicers may be forced to dismiss a foreclosure case if the courts do not grant a postponement of the foreclosure. The CFPB adopted several industry recommendations. For example, the final rule grants a servicer additional time to complete the loss mitigation evaluation, rather than forcing it to deny loss mitigation options, when the servicer is waiting for necessary third-party information (such as a third-party approval) or documents. The CFPB has also clarified that a junior lienholder is permitted to join the foreclosure action of a superior lienholder, even if the borrower is not 120 days delinquent on the subordinate loan. In addition, the CFPB clarifies how servicers are to select a reasonable date by which a borrower should return documents and information to complete an application. Servicers are also permitted to offer certain short-term repayment plans (in addition to short-term forbearance plans) based on incomplete loss mitigation applications. They may also communicate the terms of such repayment and forbearance plans after the offer (rather than prior to the repayment offer, as was initially proposed). The final rule describes how to handle loss mitigation applications that may be pending at the time of a servicing transfer. Of note, the CFPB offers transferee servicers additional time to complete certain loss mitigation notices and steps, while preserving or even expanding borrower protections during this time. In some cases, borrowers may be under the protections of the rule even if a complete loss mitigation application is received by the servicer 37 days or fewer before foreclosure. It is imperative that any process stops tied to the 38th day of delinquency be reviewed when associated with a loss mitigation application in flight during a servicing transfer. Although servicers may want to implement certain provisions early, the CFPB does not provide for “early compliance.” Servicers should carefully read the final rule prior to adopting any change before the effective date to ensure that such change does not conflict with existing requirements.

Loss mitigation continues to be a significant focus for the CFPB.

Loss mitigation Loss mitigation continues to be a significant focus for the CFPB, as evidenced by the changes made by the final servicing rule. The final rule abandons the so-called “one bite at the apple” and includes provisions that will allow

borrowers who have previously taken advantage of loss mitigation options to do so again if their loans have been current at any time since the last complete loss mitigation application was submitted. Servicers must unravel any processes that may limit additional reviews. In addition, the final rule requires servicers to send a notice when a loss mitigation application becomes complete. In many cases, servicers today are already complying with this requirement and, thus, may not need to make significant operational changes. If they are not, it is imperative that processes be put in place internally or through technology that will trigger this step. When it comes to dual tracking, the final rule clarifies 28 January - February 2017 d Servicing Management

Early intervention for delinquent loans Under existing rules, servicers are required to make live contact (or a good-faith effort to make contact) with delinquent borrowers by the 36th calendar day of the delinquency and promptly advise them of loss mitigation options. Also, a written notice of loss mitigation options

must be provided to borrowers by the 45th calendar day Technology functionality will be needed to help serof the delinquency. The final rule clarifies how frequently vicers establish this level of transparency. It will also be these outreach attempts must occur during a borrower’s needed to help ensure that servicers are representing the delinquency or bankruptcy. correct information for pre-petition balances, post-petition Today, borrowers in bankruptcy or borrowers who have amounts due and the contractual application of payments made valid cease communication requests pursuant to the in the “past payments” breakdown section of the Chapter Fair Debt Collection Practices Act (FDCPA) are exempt 12/13 bankruptcy periodic statement. Although the popufrom receiving these communications. The final rule narlation of bankruptcies in a servicer’s portfolio is typically rows these exemptions and adds considerable complexity. a very small percentage of the overall pool of loans, this Whether the servicer is exempt from the EI live contact requirement is complex and may be time-consuming to and written notice requirements depends on whether the implement. borrower is in bankruptcy; loss mitigation options are Processing and procedural changes will also be needed available; or the servicer is a debt collector that receives a to define how to handle a bankruptcy statement when written FDCPA cease communication. certain information is not available, such as pre- or There are some additional twists and turns associated post-petition information prior to filing a proof of claim. with the EI requirements. For example, if no exemption Servicers may also want to implement stops on the issuapplies, servicers must send the written notice to the borance of periodic statements when the court has granted rower but are permitted to send it only once during the the servicer a lift from stay or a bankruptcy plan provides entire bankruptcy period. If the stay is lifted, servicers can for surrender of the property, which are two exemptions move forward as if the bankruptcy did not occur. from providing periodic statements under the final rule. However, in the case of a valid cease communication Other scenarios exist that allow the servicer to stop sendrequest, servicers are prohibited from sending the EI writing statements. ten notice more than once during any 180-day period. The final rule also adopts certain non-bankruptcy proviAlso, servicers must determine when a borrower should sions. They include an exemption from sending periodic receive the standard notice content, as well as when such statements for charged-off loans if certain conditions are notice must be modified to indicate that satisfied and an explanation of how to the servicer may - or intends to - invoke present accelerated and reinstatement foreclosure. Fortunately, the CFPB unMost servicers amounts on non-bankruptcy statements. ravels this complexity in a flowchart in would likely agree the November 2016 RESPA and TILA is of the essence that the CFPB took Time Mortgage Servicing Rules Small Most servicers would likely agree that Entity Compliance Guide. much of the input the CFPB took much of the input of serAs a final note, servicers should be vicers into consideration before releasof servicers into aware that, along with the final servicing the final servicing rule. It is certainly consideration ing rule, the CFPB offered an “interprehelpful to have a longer implementation tative rule” that provides servicers that before releasing the timeline for some of the more difficult are debt collectors with a safe harbor final servicing rule. provisions, and by and large, there were from FDCPA liability due to their comno big surprises in the final rule. pliance with applicable EI provisions (as Of course, the final rule includes well as a safe harbor to servicers communicating with SIIs other provisions not discussed in this article, such as a pursuant to the final servicing rule). standard definition of delinquency and a correction to force-placed insurance notices. Most servicers and techPeriodic statements for loans in bankruptcy nology partners have been discussing and planning for this Starting April 19, 2018, servicers must begin providing final rule for many months. Now that it has been released borrowers in bankruptcy with specifically tailored periodic and published, however, time is of the essence for serstatements or coupon books, subject to certain exempvicers to work with their technology partners and consultions. tants to prepare for and implement the new provisions on This new requirement is complex, partly because of time. s the need to track varied accounting associated with prepetition, post-petition and contractual application of pay(Author’s note: This article is intended for general informaments applicable to a loan in bankruptcy. Generating a tion purposes and is not intended to provide legal and/ compliant statement for a customer that provides all of the or any other professional advice to individuals or entities. elements of the new rule will require both good planning Please consult with your legal and professional advisors and enabling technology. before taking any action based on the information appearTo ensure that borrowers in bankruptcy do not perceive ing in this article.) periodic statements as a collection action, the final rule requires certain bankruptcy disclosures to be included that Vicki Vidal is senior vice president of core servicing in the technology, data explicitly note that the periodic statement is simply for inand analytics division at Black Knight Financial Services. She can be formation purposes and not an attempt to collect a debt. reached at [email protected]. Servicing Management d January - February 2017 29

❖ COVER

STORY

The ‘Knowns’ Of 2016 ... And The ‘Unknowns’ Of 2017 Servicers can expect to continue dealing with regulation in 2017, but the big unknown is the impact of a new administration. by Patrick Barnard

SM: What do you think were the most significant or disruptive factors impacting the mortgage servicing industry in 2016? Sharma: One of the most disruptive factors impacting servicing last year was the rise in loan payoffs due to the unexpected reduction in mortgage rates, especially post Brexit. Servicers had to scale up their payoff functions in order to meet the surge. Fay: Compliance was Gagan Sharma again the dominant factor on the mortgage servicing landscape. Servicers of all sizes are working to enhance their processes and procedures to further comply with the changing regulatory environment.

I

n some respects, 2016 was a “year of healing” for the mortgage servicing industry. For example, this past summer, the Consumer Financial Protection Bureau (CFPB) released its final mortgage servicing rule, which provided much-needed clarity - as per servicer feedback - on the original set of rules that took effect in January 2014. Although compliance will no doubt continue to create headaches for servicers in 2017, most people in the industry agree that the final rule has greatly helped servicers better understand the “rules of the road.” It was also a huge year in terms of mortgage servicers upgrading their technology and systems to better meet compliance - and, perhaps just as important, to realize new efficiencies and cost savings through automation. Servicers made great strides in terms of meeting compliance mandates through technology upgrades - and, moving forward, they will no doubt continue to heed warnings that they can no longer hide behind antiquated servicing technology. In addition, delinquencies and defaults - which have become even more expensive to service under the new regulatory framework - have dropped to pre-crisis levels, thus helping servicers further reduce their operational costs and worry less about potential fines and lawsuits. Add in the rising interest rates that came in the fourth quarter, which will help servicers realize better profits through increased earnings on their positions, and things actually start looking pretty good for the mortgage servicing industry in 2017. To get a clearer view of factors that significantly changed the industry in 2016 - and which factors will likely bring about further change in 2017 - Servicing Management recently interviewed a diverse swath of executives, including Gagan Sharma, CEO of BSI Financial Services; Ed Fay, president and CEO of Fay Servicing; Michael Schreck, senior vice president of default software solutions provider Equator; Kevin Kanouff, president and CEO of Statebridge Co.; and Lee Smith, chief operating officer for Flagstar Bank.


Ed Fay

Schreck: Servicers have to do more with less to remain profitable, as the costs to service performing and delinquent loans remain extremely high - over four times what they cost in 2010. Meanwhile, delinquency has dropped below 5% for the first time since 2008. With budgets shrinking and regulatory risk elevated, technology and advanced analytics need to bridge this gap. Expect an inflow of new disruptive mortgage tech to address this need. Kanouff: The most disruptive factor in 2016 was the increase in regulation and enforcement from states and the CFPB on servicers. From a special servicing perspective, the sea of change from the CFPB that essentially forestalls foreclosure movement during loss mitigation acted as a countercurrent to reduced foreclosure timelines. Historically, borrowers tended to get serious about loss mitigation deals when the foreclosure clock started ticking. Now, the incentive for borrowers to act is less, and the opportunity to shorten foreclosure timelines has been lessened. Of course, these longer timelines result in reduced neighborhood home values and lower tax revenues. Obviously, the change in administration should reduce the number of new regulations on us. Smith: In 2016, compliance was a major emphasis - in particular, the cost of compliance. That has been a big thing for the industry. And then, the mortgage servicing rights (MSR) market softened a little bit in 2016 because of the low interest rate environment. So, the number of buyers in the MSR market decreased, and the value of MSRs came down. But, at the end of the year, and as of

the beginning of this year, as interest rates moved up quickly and significantly, we saw a number of potential buyers of MSRs coming back into the market, as well as new buyers entering the market. So, we’re now seeing a lot more activity in terms of people wanting to buy MSR assets, and that’s mainly a function of the increase in interest rates that came following the election. SM: What do you think will be the most significant challenges facing mortgage servicing in 2017? Sharma: This year will be a time to adapt to higher demands. Servicers will continue their investment in technology for data accuracy and servicing transfers. Servicers must also be able to meet the change in borrower expectations for a digital/online transaction experience. Fay: Compliance will, once again, be the dominant factor in the mortgage servicing landscape. Servicers of all sizes are working to enhance their processes and procedures in order to further comply with the changing regulatory environment. Schreck: The unknowns with the new administration may be the single biggest challenge for the mortgage servicing ecosystem. How will regulation change? How will underwriting change? How will the agencies’ statuses change? Without clarity on these and related issues, it is more challenging to know where to place long-term bets. Nevertheless, the core issue of servicing costs and inefficiencies will persist and will require a reinvention of process and technology automation to bring those back in line. Kanouff: For special servicers such as Statebridge, the biggest challenge is scaling into more performing paper as the number of delinquent mortgages declines. Smith: In 2017, I think compliance will continue to be very important - servicers are still going to be very focused on doing a good job from a compliance point of view, particularly for the seriously delinquent loans, because the cost of servicing a loan increases significantly once it goes past 60 days delinquency. So, that will still be a major focus.

Lee Smith

SM: What impact might a rising rate environment have on servicers in 2017? Sharma: Higher rates in 2017 would mean reduced payoff rates, which would be a good thing, as that will allow servicers to focus on investing in borrower retention for a longer period, as opposed to loans paying off very quickly. But the unknown is whether mortgage originators will retain servicing in a rising rate environment or sell loans servicing-released.

Fay: The impact of rising rates depends on an organization’s business model. Servicers that derive a great deal of revenue from refinancing their books into better loans for customers will experience some financial headwinds. In contrast, organizations that are primarily focused on servicing should see more stability in their books, with prepay speeds dropping rapidly and MSR valuations rising in kind. However, this makes the assumption that the macroeconomics of rising rates won’t cause a rise in delinquency. Schreck: I think the consensus is that there will be refinance volume, and perhaps it will trigger some last-minute purchase volume that was on the sideline in the short term. With the Fed likely to continue pushing up rates through 2017, it is signaling a confidence in the economy for the first time since the Great Recession. Ultimately, this is all good news for servicers. The more provocative question may be, when will the yields be high enough for private money to meaningfully enter the mortgage market again? Although that may not happen at scale in the next year, it is another likely impact of a continued rising rate environment. Kanouff: We own our own MSRs, and we also subservice for others. Rising rates lift boats in both of these areas. For MSR holdings, obviously, rising rates reduce our prepayment speeds, which make our MSRs more profitable and valuable. On the subservicing side, rising rates can Servicing Management d January - February 2017 31

❖ COVER

STORY

similarly help our bottom line, as we have less runoff in our portfolio. Also, we rely on Treasury float for a portion of our income, so rising rates lead to more income for us. Smith: If interest rates stay in the same ZIP code where they are today, I think we’re going to see a lot more activity as it relates to MSRs - people trading and buying MSRs - and that creates opportunities for those companies that want to subservice and grow their servicing platforms. We feel that we’re well positioned to do that because we’re the only full-service bank in the top 20 servicers, nationally, for which this is part of our core strategy. We also offer a lot of ancillary services to the people who buy MSRs from us; it’s not just subservicing - we can provide MSR lending, we can provide servicing advance lending, and we can provide recapture services because of our direct-to-consumer origination business. So, we see ourselves as having a very attractive offering to people who either buy MSRs from us or

You now see most of the leaders of large banks saying, somewhat magnanimously, that they think Dodd-Frank and the CFPB as constructed should stay. buy MSRs from others and want to put them on a servicing platform that they have a lot of confidence in. In addition, a higher interest rate environment reduces prepay speeds so, fewer loans are prepaying off. That obviously creates a greater balance of loans for servicers to subservice. SM: Any other factors you see reshaping servicing in 2017? Sharma: I think there will be continued growth in nonqualified mortgage originations, which will make that asset class larger. As a result, the industry will develop more experience in servicing that product. Although we have seen some securitizations, the industry will look to a revival of the public securitization market. Fay: From a macroeconomic perspective, rates are rising with improvement in the economy, and that should have a positive effect on housing. However, the risk with rising rates is rising payments on homes, which could cause a stagnation or drop in home prices. Average household income, according to the Fed, is $56,515, while the average home value is $193,800. A 1% increase in interest rates would mean more than $1,500 in additional annual interest - equal to more than 2.5% of the average household income. This is a big chunk of a family’s resources and could have a significant impact on home prices and delinquency rates, especially with adjustable-rate mortgages. The aggregate effect could be another increase in delinquency, which would require servicing organizations to evaluate their staffing models to make sure they are compliant with regulations and agency requirements and are providing an engaged and high-touch customer experience to avoid delinquencies. 32 January - February 2017 d Servicing Management

Schreck: Although millennials have held off purchasing homes longer than previous generations, their impact on the mortgage market is coming quickly. In particular, their use of social media and smartphones will reshape which mortgage brands thrive in the future. Traditional financial brands do not resonate much with this generation, and whichever company reinvents its technology/processes to match to their preferences will be the big winner. How poorly Wal-Mart competed with Amazon online despite its supply-chain brilliance and purchasing expertise is a metaphor for how a new entrant has a chance to win with this new generation. Kanouff: Yes, what will Trump do with the CFPB? You now see most of the leaders of large banks saying, somewhat magnanimously, that they think Dodd-Frank and the CFPB as constructed should stay. These guys are not stupid; they know that the current regulatory structure vastly favors them over smaller competitors. They have the scale to comply with the structure, and they know that it creates a heavy headwind for companies without that scale. DoddFrank and, by extension, the CFPB created a competition arbitrage for large banks, allowing them to get bigger ironic, considering that the large banks’ actions caused the draconian regulations in the first place. Smith: Obviously, we’re all guessing, and I don’t like to guess, but we don’t know what this new political environment will bring. We obviously have built a very robust risk and compliance infrastructure, and I think we feel confident that whatever it is we need to do, we will be in a position to deal with it. Any time there is change, you have to react to it. And I feel confident in our ability to react to it. But anytime you have to make changes, it creates at least some disruption. But it affects some more than others - and, because some of the statements that have been made about potential regulatory rollback are so broad, it’s hard to say for sure what it really means. It’s all just sort of guesswork at this point. We’ve built a model and a platform where we know where every loan is. We’ve invested a lot in technology and processes and in analytics and management information systems, and we’ve invested a lot in our risk and compliance infrastructure. I believe that gives us a huge competitive advantage, and it gives a lot of confidence for the people we’re subservicing for - and that’s not something that we’re going to want to give up. On the performing servicing side, the other theme is, it’s all about scale. You really have to have scale on the performing side. And I think something the industry has found is that you probably need at least 175,000-plus loans, on the performing side, to really start to make that work. s

 Foreclosure

Black Knight: National Foreclosure Rate Decreased By More Than 30% In 2016

T

he mortgage delinquency rate (loans 30 days or more past due but not in foreclosure) dipped to 4.42% in December - a decrease of 0.91% compared with November and a decrease of 7.49% compared with December 2015, according to Black Knight Financial Services’ First Look report. As of the end of the month, about 2.248 million properties were delinquent - a decrease of about 15,000 compared with November and a decrease of about 160,000 compared with December 2015. About 682,000 properties were seriously delinquent (90 days or more past due but not in foreclosure) - flat compared with the previous month but a decrease of about 126,000 year over year. The foreclosure inventory continued to shrink, as well, falling to 0.95% of all loans - a decrease of 3.29% compared with November and a decrease of 30.53% compared with December 2015. There were about 59,700 foreclosure starts in December - a decrease of 1.16% compared with November and a decrease of 23.56% compared with November 2015. The national foreclosure rate decreased by more than 30% in 2016, the report shows. This marks the most improvement Black Knight has seen in any year on record. The inventory of loans in active foreclosure fell by more than 200,000 during the year, ending at 483,000. Prepayment activity continued to slow in December, as borrowers and the market reckoned with higher rates.

Banks Pushed Hard To Close Out ‘Legacy’ Foreclosures In Q4 More than half of the foreclosures that were completed in the fourth quarter were “legacy” files, going back to 2004-2008, a recent report from ATTOM Data Solutions shows. “Foreclosures completed in the fourth quarter had been in the foreclosure process 803 days on average - a substantial jump from the third quarter and indicating that banks pushed through significant numbers of legacy foreclosures during the quarter,” reports Daren Blomquist, senior vice president at ATTOM Data Solutions, in the firm’s Year-End 2016 U.S. Foreclosure Market Report. “Despite that push, we still show that more than half of all active foreclosures nationwide are on loans originated between 2004 and 2008, with a much higher share of legacy foreclosures in some markets.” The report shows that foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 933,045 properties in 2016, which is down 14% from 2015 to reach the lowest level since 2006, when there were 717,522 properties with foreclosure filings. Foreclosure starts reached 478,857 for the year - down 16% compared with 2015 and down 78% compared with the peak of 2.139 million foreclosures in 2009. In fact, it was the lowest rate since ATTOM began tracking foreclosure starts in 2006. The report also shows that 0.70% of all U.S. housing Servicing Management d January - February 2017 33

 F o r e c l o s u r e units had at least one foreclosure filing in 2016 the lowest annual foreclosure rate nationwide since 2006, when 0.58% of housing units had at least one foreclosure filing. So, where are most of those “legacy” files? According to ATTOM, states with the biggest backlogs (highest numbers) of legacy foreclosures, as of the end of December, include New Jersey (32,279), New York (31,838), Florida (29,411), California (17,208) and Illinois (12,244). States with the biggest shares of legacy foreclosures include the District of Columbia (76%), Hawaii (66%), New Jersey (64%), Nevada (63%), Delaware (61%) and Massachusetts (61%).

Ocwen Helped 75,000 Homeowners Avoid Foreclosure In 2016 Ocwen Financial Corp. reports that it helped approximately 75,000 homeowners avoid foreclosure through loan modification programs - including the Home Affordable Modification Program (HAMP) in 2016. Ocwen claims that it leads all other servicers in HAMP modification activity. In 2016, the firm granted approximately 42,000 loan modifications through the HAMP program, many of which included a reduction in principal. Ocwen also outperformed the industry under the new HAMP Streamline Modification Program, the firm claims in a release. In 2016, it completed more than 14,500 streamlined modifications and expects that number to increase as additional homeowners convert their trial plans into permanent modifications. In the third quarter of 2016, Ocwen completed 20% of all HAMP modifications industry-wide, according to the latest HAMP report from the U.S. Department of the Treasury. The firm claims this is 53% more HAMP modifications compared with “the next best servicer.” What’s more, the firm granted 49% of all HAMP principal reduction modifications completed in the third quarter. Since Jan. 1, 2008, Ocwen has granted approximately 720,000 modifications and has completed more principal reduction loan modifications than the three largest servicers combined, the firm boasts in its release. Despite the expiration of HAMP at the end of 2016, Ocwen says it will continue to offer loan modifications to struggling borrowers. 34 January - February 2017 d Servicing Management

CoreLogic: Completed Foreclosures Continued To Fall In November The number of completed foreclosures in the U.S. continued to fall in November, according to CoreLogic. The firm’s monthly foreclosure report shows that there were about 26,000 completed foreclosures in November 2016, the most recent month for which there was data as of press time - a decrease of 14.1% compared with about 30,000 in October and a decrease of about 30% compared with November 2015. States with the highest numbers of completed foreclosures in the 12 months ended in November were Florida (48,000), Michigan (31,000), Texas (25,000), Ohio (22,000) and Georgia (20,000). These five states account for 36% of completed foreclosures nationally. States with the lowest numbers of completed foreclosures, year over year, were the District of Columbia (221), North Dakota (260), West Virginia (375), Alaska (616) and Montana (627). Completed foreclosures averaged about 22,000 per month nationwide between 2000 and 2006, according to CoreLogic’s historical data. At 26,000 in November, that means we’re getting very close to pre-crisis levels. In addition, the foreclosure inventory decreased 2.4% compared with October, CoreLogic’s report shows. As of the end of November, the national foreclosure inventory stood at about 325,000 properties, or 0.8% of all homes with a mortgage, compared with 465,000 homes, or 1.2%, in November 2015. States with the highest foreclosure inventory rates in November included New Jersey (2.8%), New York (2.6%), Maine (1.7%), Hawaii (1.7%) and the District of Columbia (1.6%). States with the lowest foreclosure inventory rates were Colorado (0.2%), Minnesota (0.3%), Arizona (0.3%), Utah (0.3%) and California (0.3%). As of the end of November, about 1 million mortgages, or 2.5%, were in serious delinquency (90 days or more past due but not in foreclosure) - the lowest level since August 2007. That’s a decrease of 22.1% compared with November 2015. The decline was geographically broad, with year-over-year decreases in serious delinquency in 48 states and the District of Columbia. “The decline in serious delinquency has been substantial, but the default rate remains high in select markets,” says Frank Nothaft, chief economist for CoreLogic, in a statement. “Serious delinquency rates were the highest in New Jersey and New York, at 5.6 percent and five percent, respectively. In contrast, the lowest delinquency rate occurred in Colorado, at 0.9 percent, where a strong job market and home price growth have enabled more homeowners to stay current.” “The seven percent appreciation in home prices through November 2016 has added an average of $12,500 in home equity wealth per homeowner across the U.S. during the last year,” says Anand Nallathambi, president and CEO of CoreLogic. “Sustained growth in home prices is clearly bolstering homeowners’ spending power and balance sheets and, as a result, spurring a continued drop in defaults.” s

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Loan Management and Servicing Seminars

1-Day Symposium

MARCH 8-9

Philadelphia, PA

Hyatt Regency Jacksonville — Riverfront

Jacksonville, FL JUNE 14-16

Hyatt Regency Austin Austin, TX

MAY 12

DoubleTree by Hilton

Legal Issues Seminar JULY 13-14

Fairmont Chicago Millennium Park Chicago, IL