By Jerry DeMuth

It turns out that doing more loan modifications efficiently, quickly and at less cost is all about adding improved technology - not just adding more people. In servicing - an industry not known for innovation – that’s kind of a shocking development. Out of necessity, pressed to find innovative solutions to handle waves of incoming defaults, more and more servicers are turning to vendors to act as their outsourced special servicers. This new band of tech savvy vendors is helping servicers to meet a variety of ever-changing loan-mod technology needs, rather than try to improve their in-house technology systems or acquire a new system with the required flexibility. "We had tools we used internally, and they did a fine job for the volume we were doing at the time,” says James Smith, president of Pittsburgh-based Urban Lending Solutions, based in the company’s Broomfield, Colorado, fulfillment facility. 'Because of where the market was heading and the [volume] of loan mod programs was getting larger and larger, those tools were not able to keep pace with what we were doing. We weren’t failing our clients. The question was, would we be able to maintain our pace using those tools? So we looked for a partner so we could replace those tools." The company found and partnered with Denver-based Mortgage Cadence LLC, and since then it has gone from doing 25,000 loan mods a month to 400,000 in less than two years, Smith says. Without Mortgage Cadence, he says, "It would be a disaster. We wouldn’t be where we are today. Doing loan mods is too massive of a project; it changes constantly. Trying to do it manually with disparate systems is just too difficult. We wouldn’t be the company we are today without it. We’d have to reduce [our volume] and would probably lose money doing it. Our company wouldn't be in existence at all."

“A lot of people didn’t think that the [loan default] problem would exist long enough to recoup a one-year or two-year investment in a new technology product. And a sophisticated loan processing system might take six to eight months to deploy,” says Dain Ehring, chief executive officer and founder of Dorado Corporation, San Mateo, California.

But servicers now see loan modifications as a long-term challenge and are turning to vendors to help, Ehring says.

“This trend doesn’t displace traditional servicers,” adds Steven Horne, president, chief executive officer and founder of Wingspan Portfolio Advisors LLC, Carollton Texas. “It just operates alongside. It’s a trend that will go on forever. It allows servicers to focus on what they’re uniquely well positioned to do – servicing performing loans.”

Early response wasn’t working
Servicers often had tried to keep up with needed technology changes in a piecemeal fashion, vendors say they discovered after being contacted by servicers.

Joey McDuffee, head of marketing at technology vendor Wipro Gallagher Solutions Inc., Franklin, Tennessee, says he found that a number of servicers were using “a combination of platforms, spreadsheets, manual processes, Post-it® Notes, etc., in order to try to understand the HAMP [Home Affordable Modification Program] program when it started. There really wasn’t a good solution when it started. There really wasn’t a good solution to handle HAMP from start to finish.”

And Wingspan’s Horne says he found that some large servicers “had bolted so many dependent systems onto their core system over the years that any change resulted in a cascade of effects on hundreds of dependent systems,” greatly limiting their flexibility. As a result, when making a single change, they often had to make changes to more than 100 systems – not just one.

Vendors provide servicers with the advantage of new technologies and their flexibility, some vendors note.

When this happens, says Greg Hebner, president of NuView Financial Services LLC (formerly known as Mortgage Outreach Services [MOS Group Inc.], Irvine, California, adding new developments and making changes is done on that vendor’s schedule, not the servicer’s, and will take a while.

“We can create something very customizable for a client in a matter of days,” Hebner points out. “If a client needs us to add a task or change some reporting, it can be done fairly quickly because our system is very customizable and flexible.”

When HAMP was rolled out, he notes, the documents required from borrowers kept changing and NuView was able to quickly change its system in response. When Fannie Mae and Freddie Mac said two once-required documents were no longer needed, the company’s system was able to quickly pull out for its clients the loan-mod packages that had all but those two documents.

During HAMP’s first year of implementation, changes were made almost monthly, recalls Duke Ulrich, chief executive officer of DRI Management Systems Inc., Newport Beach, California.

“But for us,” he says, “it was just a matter of changing the rules engine in a couple of places and then being up-to-date with the latest requirement. Whether loan-mod programs are government programs or internal [proprietary] programs, they are constantly changing or being tweaked.”

Investor requirements is an area where the rules engine comes in to play, says Ulrich. “There are differences between FHA [Federal Housing Administration] and Fannie Mae or Freddie Mac. Based on the attributes of the loan – who the investor is or what loan type it is – the system can go in and say, ‘In this particular state for an FHA loan, this process should happen at a certain period of time,” Ulrich explains.

DRI, he says, currently is working with one client to develop a website where borrowers could fill out and immediately send back forms and also download forms that need to be signed and perhaps notarized.

Close working relationships
Vendors say when it comes to default servicing, the outsourcing process involves working closely with servicers especially at the start.

“We usually have a manager or a project director at the servicer’s shop that we interact with,” explains NuView’s Hebner. “We often spend some time at the client’s location. We like to walk through their process. Then we create our own policies, procedures and quality control, and share that with our clients. We ask whether everything in our process looks good and ask whether there’s anything they’d like to see done differently.”

Hebner adds, “We explain our tracking and reporting, and explain our quality and compliance control and our risk management. We bundle it all together and present that to the client. The client may say, ‘We’d like to see you do this a little bit different.’ We often do that on-site to give them a chance to understand what we’ll be doing.”

Vendors have developed their own flexible proprietary systems to do loan mods, under any program and for any loans, making their investment with the expectation that their systems always will be needed by servicers.

“The newer technology typically is Web-based so that it’s easy to deploy and implement. You absolutely have to have a rules engine that can change things easily along with workflow. Being Web-based, which allows for much quicker installation, the rules engine allows you to change functionality relatively quickly along with workflow,” says DRI’s Ulrich.

“The biggest problem, which is where workflow comes in, is getting the appropriate documentation from the borrower and having conversations with the borrower,” Ulrich says. “It’s that constant follow-up. That’s what workflow will help work out. When a document was due and it’s not in, you contact them that day as opposed to waiting a month and then realizing they haven’t sent in the appropriate documentation.”

Workable with anyone’s loan mod program
According to McDuffee, Wipro Gallagher Solutions created some accelerator that include such things as a data image depository and workflow-management cueing as well as a rules engine.

“We actually took those components and basically mapped the loan modification process from the pre-qual to full modification on the back end, including the servicing piece,” he explains. That process includes escrow analysis, financial analysis, trial-payments tracking and such documents as hardship affidavits, with the workflow engine tracking what’s been done, when a document is supposed to arrive and who has each document.”

McDuffee adds, “More and more lenders are going in the direction of proprietary loan-mod products. Our system can tailor workflows to each servicer’s specific regulations, policies or procedures, and whatever programs will be tried next. So our position is to handle not only the standard federal guidelines but also ensure that the system can be tailored to keep up with any guidelines that may change. It also handles the lender’s specific workflows and portfolio calculations as well as custom documents and any other data that they may require.”

Not only are there hundreds of loan-modification programs out there, points out Urban Lending Solutions’ Smith, but they are becoming much more complex. And a workflow system was needed to manage and track documents as they were sent out or sent in. At one time, documents were imaged but not indexed. Now, working with Mortgage Cadence, both steps are taken, which improves document tracking.

“I’m using their technology to manage my workflow and manage my rules,” Smith explains. “I’m not sending stuff to Mortgage Cadence. We actually host most of the systems within our own environment. I write forms and rules within Mortgage Cadence’s application, configuring its rules to allow me to do things.”

The tech essentials for loan mods
Most technology systems that vendors use to handle loan mods for servicers have four main components, according to Dorado’s Ehring.

“One, you need a transaction-processing platform,” he explains. “Second, you need a workflow system that’s very configurable. Then you need network services that provide information as well as compliance information, fraud detection, data validation and the information you need to qualify borrowers. Then you need the fourth one – a depository for the policies and guidelines and rules that basically provide what programs are available and the eligibility for those programs.”

The flexibility of their systems is one feature that vendors commonly point to as an advantage over most servicers’ in-house systems.

When Wipro Gallagher Systems was developing its system, says McDuffee, it wanted to ensure that its software platform could actually handle not only the government programs but also be flexible enough to handle any other loan-modification product.

“We wanted a configurable solution that could handle a multitude of products and actually provide feedback to our customer [the servicer] as to which product is the best one for the borrower and the investor,” McDuffee explains. “Our platform provides a cash-flow analysis that shows what makes the most sense.”

Vendors may work closely with servicer clients, with servicers handling some of the work, or they may handle almost all the work, independent from the servicer client, including borrower contact.

Sometimes such customer contact remains inside the servicing shop, but often it now is also being handled by the vendors whose workflow-management systems keep track of the documents that are needed from the borrowers – what has been requested and when they are submitted.

“We do it two different ways. A lot of the times we’ll take a file transfer from the servicer, load it onto our system and work it with our technology, which works really well. And then we’ll also work inside the servicer’s system and work it with our technology, which works really well. And then we’ll also work inside the servicer’s system and use their technology. So we do both. The processes are inherently different because the technology is different,” explains Wingspan’s Horne.

“Training goes both ways. The servicer has some idea of what their requirements are, especially if they’re using our technology. We can help them get where they’re going faster, better, more efficiently, with better results. It’s client education, with our people doing it,” he says. “In one of our projects, working with a servicer [client], we’ve developed an entire new workflow-reporting process, which they’ve now taken across their business.”

Capturing the documents
NuView has developed a platform it calls AXIS, which it describes as a complete workflow solution to capturing information and documents from borrowers, explains Hebner.

“Servicers aren’t very good at collecting documents. They’re used to sending out statements and collecting checks,” he notes.

Once all that information is captured, the system analyzes it and matches it to whatever resolution options, whether a loan mod, a short sale or a foreclosure, are available. Then another communication goes out to borrowers, asking for whatever additional documentation may be needed to qualify for those options.

“For that, we’ve built a pretty robust document-collection and document-management system that indexes and catalogs documents,” Hebner says.

People vs. technology
But to get all the information that is required from the borrowers, NuView takes a very non-tech approach. Each borrower is assigned to a specific staff person at NuView and given the phone extension and e-mail address of that person, who can clarify what is needed and provide help with completing forms.

“It does take some work to engage the borrower,” Hebner admits, “but between the technology and having knowledgeable staff that are committed to that one-on-one relationship, we get a much higher resolution rate.”

Skilled staffers remain important, especially in the beginning of the loan-mod process, vendors say, but not in place of any technology functions.

Some servicers have boasted of adding thousands of people to their default operations to handle loan mods. This is “the wrong direction,” according to DRI’s Ulrich. “This is where automation needs to do a lion’s share of the work,” he says.

But one critical area of the loan-mod arena where people are still important, Ulrich says, is borrower contact, where people are talking to borrowers about getting a loan mod. “Those people – their attitude, their approach and their knowledge – are extremely important,” he says.

Yet some vendors say that in some instances servicers still rely too much on people to speed their activity.

Many servicers have seen the current widespread default problem as a temporary one that can be handled by hiring more people, says Dorado’s Ehring.

“Now people are waking up to the fact this is a much larger problem and is going to be around for a little while. So people are no longer looking for temporary solutions; they’re looking for longer-term technology solutions,” he says.

Reliance on vendor technology to do loan mods will only increase, say vendors.

“We don’t see any slowdown of loan modifications,” says Urban Lending Solutions’ Smith. “Taking properties in as REOs [real estate-owned] would destroy the market even worse than it’s already been destroyed. So taking them all back on balance sheets is not an option, either. So the only other option is to create some kind of cash flow from the loan for the investors in the asset. And loan modification is the best and only vehicle for that to happen. So we’ll see a lot more loan modifications out there and different types of programs,” Smith predicts.

“As the servicing business develops and the need to complete modifications grows, the inherent need to leverage automated workflow and dynamic document generation is going to be very important,” says Michael Detwiler, Mortgage Cadence’s chief executive officer. “Servicers will need a system that automatically cues work up to specific users based on the tasks to be completed. For example, when a credit report or appraisal comes in, the system would automatically recognize these documents and associate them with the appropriate loan, adding the appropriate information to the system and then assigning a specific task to an individual to proceed to the next steps.”

Wipro Gallagher Systems’ McDuffee adds: “The demand for our rules-based product is only going to get higher, because lenders can’t keep up with the volumes that are going to be coming across their desks.”