Miriam Moore is the President of Default Services at ServiceLink, a provider of transaction services to the mortgage and finance industries.
Few things in 2020 have been predictable. Looking back at all that has transpired, it would be tough to have imagined such a life-altering event on a global scale. The effects of Covid-19 on the U.S. economy essentially catapulted otherwise stable and hard-working families into financial hardship. Millions lost jobs, putting the very roof over their heads in jeopardy.
Swift action by the federal government and various regulatory agencies in concert with mortgage servicers led to a series of forbearance programs as well as foreclosure moratoriums. This helped protect hundreds of thousands of homeowners from potentially losing their homes during a pandemic. However, when the current moratoriums are lifted, real estate investors and servicers will need to be prepared for an increase in defaulted loans. Whether that means hiring additional personnel, cross-training staff or prepping files ahead of time, working ahead now will likely pay off in the end. Managing the likely increase in defaulted properties will be a true test of a servicers’ ability to scale while simultaneously focusing on mitigating risk, reducing holding times and saving on costs.
Much Too Manual
To break it down, servicing is essentially managing an asset. On its face, it sounds simple, but there are countless decisions and data points that have the potential to impact the outcome. During the disposition process, servicers have to take into account things like carrying costs, property preservation expenses, the cost and time to clear title issues, and valuation information for each asset. No matter the complexity of the property, time and money are always at stake. Choosing the wrong path could lead to losses. Many servicers in the space currently navigate this process manually, leaving them open to the additional risk of human error. On average, servicers consult with as many as five different vendors and several different operating systems to reach a decision on a single asset in the default life cycle. While this process is currently sustainable, there’s no guarantee it will remain so into the future. In light of an expected surge of defaulted properties, the timely and sometimes painstaking process could benefit from more innovation.
A High-Tech Solution
One source of innovation comes from the advances in machine learning and predictive modeling. This technology can help servicers and investors make smarter decisions on how to manage their portfolios in any economic situation. Both of these technologies are a form of artificial intelligence (AI) that processes large amounts of data to learn, find patterns and predict outcomes. Because so many tasks associated with servicing are repetitive, machine learning can automate many of the processes, alleviating much of the need for manual intervention and additional personnel costs. Predictive modeling, on the other hand, can configure different datasets and deliver the most favorable path for an asset based on the overall goal of the servicer.
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The results of utilizing AI are impactful in a number of ways. The need to shuttle between various programs and vendors is greatly reduced when disposition paths are modeled. This enables the servicer or investor to make the decision to sell the property in an online auction, invest in repairs or sell it “as is” to a new buyer. These tools remove process friction to help servicers make more informed and timely portfolio decisions. When these technologies are truly used in tandem, the benefits are wide-ranging, including enhanced operational efficiencies, reduction in risk, reduced holding times and reduced losses.
Investors and servicers shopping for automated technology solutions have a lot to consider. In my work as a servicer providing default services to financial institutions, I’ve developed five top questions to ask when preparing to select a provider:
1. What is the ROI? Will it solve a problem that is costing me money or time? Make the calculations to ensure the solution fits the problem.
2. Who are the people behind it? The company you ultimately choose should have a long history of expertise in the industry or market.
3. What does the product road map look like? Choose a vendor that is passionate about building new features into its technology and that has a clear vision for the future.
4. Will it integrate with our current systems? Ask potential providers about the integration methods they support and how the data will be transmitted, processed and stored.
5. Is it secure? One way to check security is to ask to see vulnerability scan reports.
Before the extensions are exhausted and the foreclosure moratoriums are lifted, servicers without a technology solution should use this time to prepare for the future. While additional loss mitigation programs will likely be offered, it could still be a challenge for servicers, courts, foreclosure attorneys and other agencies to keep pace with the backlog. I believe the industry will see those companies with more forward-thinking and emerging technologies at the ready as better prepared in the coming months and years.