Friday, November 29, 2013

The New Mortgage Collections Environment

Collection efforts for mortgage collections that worked well in times of easy credit may not be appropriate today. The factors changing the collection environment include tight credit, high collection volume, complexity in the mortgage industry and underwater mortgages. Many consumers have to choose which debts they resolve. It takes skill to keep mortgage debt in the priority category. In some cases, such as underwater mortgages, consumers are tempted to walk away from the debt.

New Regulations
The Servicer Alignment Initiative (SAI) effective October 1, 2011 and the Home
Affordable Modification Program (HAMP) implemented in 2009, help homeowners modify mortgages to stay in their homes. Added to this is the highly publicized robo-signing of foreclosures by major banks and it’s a new world for mortgage collections.

The FNMA (Federal National Mortgage Association), FHLMC (Federal Home Loan Mortgage Corporation) and SAI are targeted to align servicing requirements in four areas: (1) borrower contact (2) delinquency management practices (3) loan modifications (4) foreclosure timelines. 
As detailed at:, the FHLMC almost mirrors these guidelines. The differences are based on the interpretation of their respective servicing initiatives. Borrower contact is specified and may be a pre-cursor of things to come with the updating of FDCPA on the part of the new Consumer Financial Protection Bureau (CFPB).

Strategic Default      

Despite the negative publicity of robo-signing, foreclosures and problems with HAMP, the facts reveal that half of underwater homeowners walk away from homes without notifying the loan servicer. This has created a new area referred to as strategic default.

“It is largely based on the individual’s (conducting strategic default) financial savvy,” said Kevin Lateko, a mortgage servicer in a collection division in Texas. “The debtor either purposely defaults on debt to improve his debt-paying ability instead of paying on his mortgage or is in a negative equity scenario and the market value of the property is below loan value. Either way the borrower lacks the motivation to pay on a worthwhile debt.”

Lateko provided an example when he spoke with Collection Advisor: “Take an individual who defaults on his/her mortgage payment since it is his/her largest debt. Let us presume the mortgage payment is $3,000 and his/her total monthly household net income is $5,000 with $2,700 in expenses each month; thus making the disposable income negative $700 monthly. By circumstance they live in a State in which the standard foreclosure timeline is seven months from date of default (or nine months from last paid installment). Imagine what you could do with the “extra” disposable income you have: pay off your other outstanding debts or even save up for a deposit on a new property that is in a negative equity scenario. Now the debtor can pay for an investment that has a higher equity potential. Fairly similar, but I believe the defining characteristic between the two is either for default or hardship. Some had to “strategically” default due to job loss to ensure the welfare of their family.”

Foreclosure Timeline:
4 – 19 Months

In 2009 the Home Affordable Modification Program (HAMP) was revolutionary. According to Laketo: “It came during a period where the focus on assisting the homeowner was very rare with banks and servicers. Although the qualifications for borrowers and the implementation of the program are continually changing, it’s largely unsuccessful. The mentality of banks or servicers is not readily able to adapt to changes in the program and loss mitigation must be conducted.”

Each State has a specific foreclosure timeframe that certain investors and guarantors require servicers to adhere to, due to the potential loss acquired while in the foreclosure process. FNMA’s “maximum number of allowable days” between referral to attorney (or trustee) and foreclosure sale date ranges from 120 days in Missouri to a maximum of 570 days in New York City. FNMA’s suggested foreclosure time lines can be found at the following link:

“These maximum allowable days to foreclose can slow or hinder any given property from being foreclosed on,” Laketo suggested. FNMA incentivizes or penalizes mortgage servicers based on their performance since FNMA takes the loss.”

No Rush To Foreclose

Unfortunately, somewhere along the line, the general perception came about that mortgage companies are in a rush to foreclose on defaulted homeowners.

“Nothing could be further from the truth,” according to a mortgage collection attorney. “More vacant properties exist because of homeowner abandonment than as a result of foreclosure actions against homeowners in occupancy. Foreclosure is the last resort when loan modifications, short sales, and other efforts to help borrowers are not viable.”

The Mortgage Bankers Association of America (MBA) reported that in 2010 more than 1.5 million homeowners received loan modifications. During that same period, RealtyTrac reported that one million homes were foreclosed. The estimate by MBA as of December 1 is that 11-12% of all mortgages in the U.S. are past due.

“There is a reason why 50 percent more homeowners received loan modifications than experienced foreclosure,” the mortgage collection attorney explained. “It is in everyone’s interest to keep borrowers in their homes. Occupied properties are safer and maintain their value better than vacant ones. Unfortunately, all too often, homeowners in default simply abandon their homes, without ever making contact with their loan servicers to attempt a modification, short sale, or other resolution.”

“The highest level of property preservation services cannot protect a vacant property to the same degree that an occupied property is overseen,” according to Robert Klein, CEO of Safeguard Properties. “As long as a property is in default and prior to foreclosure, the rights of the servicer to maintain that property are limited. The rights remain in favor of the homeowner, even one who is no longer there. That is why collecting on past due mortgage payments is so important.”

“Until that property can move through the foreclosure process, servicers winterize properties to prevent pipes from freezing; they cut the grass and discard yard debris,” Klein said. “They remove hazardous materials and food items, as well as address pest infestations, roof leaks, basement flooding, and other issues that can be harmful to the structure and surrounding properties. Each property costs servicers thousands of dollars for continued inspections and maintenance until the property moves through the foreclosure process. During that time, he property will lack proper heating or ventilation to protect the structure from extreme weather. Even though the home will be secured and inspected regularly, without an occupant it will be more susceptible to squatters, vandals, and teens looking for a place to party.”

The foreclosure process can take over a year to conclude, and regulators haven’t created a mechanism to distinguish between occupied and vacant properties. Unless this happens, requirements will simply be tightened across the board, increasing the likelihood that the most vulnerable properties will remain at risk for longer periods. To date, Colorado is the only state that differentiates between vacant and occupied properties.

 A point often overlooked in the robo-signing controversy has been the fact that the delinquency status of the loans was never in question. Rather, the issues concern whether servicers had the proper documentation and standing to foreclose. This is a significant point, because tighter standards aren’t likely to result in fewer foreclosures. Instead, they could create another unintended consequence: a delayed housing recovery.

Collection Strategy

Heavy–handed collection techniques that alienate the consumer are a bad idea when you are competing with other creditors for the consumer’s limited resources. So, what do you need to do differently? Here are three general principles:

 - Be creative in the collection process to identify and contact the right customers at the right time.

- Maintain a constructive relationship with the debtor during the collection process.

- Empower your collectors to work effectively based on the most recent customer data available in your databases.

Some campaigns will require your most experienced collectors, while others may be candidates for proactive SMS notification and IVR interaction. Be sure to match agent skill sets, create scripts, and design the overall call routing and strategy for the best results.

For example, a company specializing in mortgage collections reaches out to customers when they are as little as three days late with a payment. This gives them time to assess the customer’s financial situation and intentions and explore options.

Another strategy is to segment customers by the collection effort involved and design specific campaigns and strategies for each group. For example, divide collection accounts by size and use different strategies for each. For accounts with smaller balances, use predictive dialing, so the collector sees the customer record only when the call connects. The collector is then able to work through considerable volume, with up to 50 minutes of talk time per hour.

For accounts with higher balances, leverage more skilled collectors and progressive dialing, which gives collectors the chance to review the customer information and prepare before speaking with the customer.

Collections Is A Difficult Job

Collector turnover is common, which increases collection costs because more time and effort is required to train new collectors. To reduce turnover, utilize scripts, supervisor monitoring and regularly update training to support your collectors and help them develop their skills.

For job variety, blend inbound and outbound calls which lets you shift collectors to inbound when volumes are high and to outbound when volumes are lighter. Outbound collection calling is more stressful. Therefore, mixing in inbound calls gives collectors a chance to work with customers who are willingly calling in to resolve their debt. In mortgage collections, blending helps make agents more interested in their work. The result is higher collector retention.

In today’s mortgage collection environment, you may be one of several creditors competing for a debtor’s limited financial resources. It is more important than ever to have higher skilled collectors manage riskier debts. Because customers are taking longer to settle their debts, a debtor who has to interact with several different collectors loses any trust or understanding he may have established with a skilled collector. A debtor who works with the same collector throughout the collection process benefits from a closer, “consultative” collection process designed to deliver higher success rates in this economy.

Debtor Choices

You want to be able to interact with the debtor when and how they want to pay such as by e-mail or Web chat options. In addition, self–service options for debtors to make payments are effective when debtors are embarrassed to speak with an agent. Offering payment options through the Web or an IVR lets these customers clear debt without talking to anyone. Data research company, Gartner Inc., estimates that the cost of the average Web self–service session is $1.10 per query, compared to $6–$10 for a call.

When it comes to mortgage collect-ions today, when everyone’s collection volumes are up and you are competing with other creditors for your debtor’s goodwill and limited resources, it all comes down to call routing, outbound dialing technologies and happy, skilled collection professionals.


Monday, November 25, 2013

National Property Preservation Conference 2013


I had the pleasure of joining my esteemed colleagues at the Safeguard National Property Preservation Conference this month to discuss the State of the Property Preservation Industry.  I always enjoy the chance to discuss pressing industry issues and learn from with this group. 

I also have the opportunity to sit with an equally impressive group to discuss how prior and new regulatory mandates are shaping the industry’s expectations and driving best practices for all aspects of the business.

Check out the summaries below and visit the conference website to learn more. 

State of the Industry

Ed Delgado, Five Star Institute

Colleen Hernandez, Homeownership Preservation Foundation
Robert Klein, Safeguard Properties
Jack Konyk, Weiner Brodsky Kider
Rick Sharga,
Ann Thompson, Consumer Financial Protection Bureau
Session Overview
During this session the panelists provided a high-level overview of the most current issues within the mortgage servicing industry. Ed Delgado led a dynamic conversation on topics such as regulatory oversight, homeownership, the role of the property preservation industry, and the industry’s future.

Regulatory Oversight
The panelists began by discussing government oversight on the mortgage servicing industry and how policymakers formulate rules and regulations. They explained that new laws are created by a group of well-intended legislators that are not necessarily housing experts, often leaving regulatory bodies to figure out how to implement guidelines. Increased directives can result in confusion and in the end make it more difficult for the average homebuyer to purchase a home.

The panelists examined how foreclosure timelines vary from state-to-state and short sales can be problematic in various ways. The panel also discussed that foreclosure practices in use prior to the housing crisis were not modified to deal with the volume in today’s market. As the number of foreclosures has grown and timelines become longer, property preservation companies have created new procedures to deal with the increase.

The behavior of homeowners has changed in the aftermath of the housing crisis. Panelists described the financial stress that homeowners feel is due to a variety of factors, from credit card debt to underemployment and the growing need to drive consumer attitudes towards living within their means. To solve this issue it is necessary to work with homeowners to examine all financial limitations that extend beyond mortgage difficulties.

Role of Property Preservation
Panelists pointed out the important role property preservation plays when efforts like financial education and loan modifications fail. They emphasized that first and foremost the goal is to keep consumers in their homes, but those efforts do not always succeed and there must be a plan in place to deal with vacant and foreclosed properties.

The panelists discussed how the property preservation industry has changed in response to the housing crisis over the last five years. The industry had to adjust, putting controls and measures into place to deal with an increased volume. Today the property preservation industry continues to evolve and works to support community stabilization.

Industry’s Future
Panelists shared their thoughts on what the future holds for the industry and homeownership. Some of the ideas were that single family rentals will be a large part of the housing market because home ownership may not increase, Americans must strive to overcome their debt that prevents them from becoming homeowners, and homeownership demand will return, but not without challenges.

The Regulatory Environments Impact to Property Preservation

Linda Erkkila, Safeguard Properties

Nickie Bigenho, Mortgage Contracting Services
Dennis Gierula, JPMorgan Chase
Rob Hicks, Lender Processing Services
Robert Klein, Safeguard Properties
Matt Martin, HUD
Michael Merchant, City of Chicago
Ann Thompson, Consumer Financial Protection Bureau

Session Overview
With the increased scrutiny placed on clients and servicers today, the regulatory environment is constantly changing and having a large impact on the industry as a whole. The panel discussed how prior and new regulatory mandates are shaping the industry’s expectations and driving best practices for all aspects of the business.

Compliance Management Systems (CMS)
A CMS is how a “supervised entity” handles its compliance responsibilities, from implementing, internally communicating, and measuring performance, to taking corrective action and making updates as needed. The panel stated that the most common weakness identified among financial institutions is deficient periodic monitoring and independent compliance audits. Risks should be identified and timeframes should be determined as appropriate for industry needs and business structure.

Background Checks
Background checks are not specifically required of third party providers, but they are recommended as part of overall risk management and mitigation. The panel noted that the industry needs to better define background check requirements and determine what level of scrutiny is appropriate. It is important to maintain a process that does not interfere or jeopardize the contractor’s status as a non- employee, and there is also the fundamental concern of the Fair Credit Reporting Act requirements as well.

Audits have become more thorough and complex over time. Historically audits were relatively short scripted. Today’s audits are much more thorough. They may happen quarterly, with advance requests for data, while lasting several days and possibly including IT audits as well. Audits will continue to evolve. Audits can be intrusive, but their purpose is to identify risk and resolve potential or identified issues before they escalate or become the focus of regulators. Regulators coordinate to ensure there is consistency and no conflicts, though there may be varying levels of control required in some cases. The panel addressed the possibility for centralized audits in the future, as the process is still being defined. It was acknowledged that the challenge of third party audits is the question of, “Who audits the auditors?”

Fast-Track Foreclosure and Anti-Blight
The panel agreed that fast-track foreclosures have a positive impact on communities and the process should be used more, as such initiatives are anti-blight and anti-crime initiatives. However, they acknowledged that the process can be challenging because of conflicting time constraints.
Vacant building ordinances have also made a positive impact on blight. Panelists agreed that Chicago’s ordinances should be a model for other communities, as it is balanced and clear. It was suggested that servicers should work to keep regular communication with code officials to remain aware of big issues in the community.

In Conclusion
The increase in regulatory oversight requires the entire industry to adjust processes and procedures, but there are many tools available to facilitate these new requirements. Industry leaders can and should work together to define best practices and succeed in this new environment.

About the National Property Preservation Conference
In 2004, the National Property Preservation Conference was established by Safeguard Properties Founder and Chairman Robert Klein to provide leaders and servicers from across the mortgage industry an opportunity to gather and focus solely on preservation. Each year, pressing issues in the industry are discussed and solutions are developed. The conference has become a forum for strengthening partnerships, cooperation, and support throughout the industry, which is imperative to the continued success of all involved in mortgage servicing.

Tuesday, November 12, 2013

Revitalizing Ohio’s Vacant Properties Conference: Policies to Transform Communities

A joint conference of Greater Ohio Policy Center and Western Reserve Land Conservancy’s Thriving Communities Institute. 

October 22-23, 2013

Columbus, Ohio
Targeting Resources to Redevelop Neighborhoods—the Slavic Village Model
Wednesday, October 23, 2013

Robert Klein, Chairman and Founder, Safeguard Properties
Justin Fleming, Director of Real Estate, Cleveland Neighborhood Progress
Jeff Raig , Project Director, Slavic Village Recovery, LLC

On Wednesday, October 23, Robert Klein joined the Revitalizing Ohio’s Vacant Properties Conference to raise awareness on the holistic community revitalization model that is being utilized in the Slavic Village Recovery Project (SVR).  Attended by over 300 community stakeholders from across Ohio, the conference provided a forum for discussion on a myriad of topics pertaining to vacant properties and community revitalization. Joining Klein was Justin Fleming of Cleveland Neighborhood Progress (an SVR partner) and Jeff Raig, SVR Project Director. 

Klein kicked-off the discussion by describing how he initiated the private for profit/non-profit partnership in response to the need for a holistic solution for community revitalization.    Klein explained that the Slavic Village Recovery project came together to rehabilitate Cleveland’s historic Slavic Village, a neighborhood where between 23% and 30% of the homes are vacant.  Klein developed the project to target several properties at a time to bring large scale change to the neighborhood.  The holistic approach, using both demolition and rehab, is being viewed a case study for the creation of an affordable housing model that can be replicated in communities around the Country. The goal of the SVRP is to acquire homes at little or no cost from the local land bank and lenders for rehabilitation and resale for a price up to $60,000.  Klein emphasized that one of the most important premises being utilized in the Slavic Village Recovery Project is that the public/private partnership should be operated like a business to support productivity. 

While the project does not use public funds, it has great support from the City of Cleveland, as well as local stakeholders, Klein said, emphasizing that local stakeholders and servicers are vital to the success of the project.  Klein stressed that mortgage services have been invaluable in acquiring homes in the area and are overwhelmingly supportive.  Justin Fleming gave greater detail on the nuts and bolts of the process utilized to acquire homes from lenders, homeowners, and the local land bank.  Fleming stressed the importance of utilizing available data to determine the time frame for acquisition and the quickest route for acquiring homes in the target area.    

Jeff Raig, who is responsible for overseeing the project on a daily basis, wrapped up the presentation with a virtual walk-through of the Slavic Village neighborhood, providing attendees with a visual of the how far the community has come with photos of the target area.  Raig also illustrated the importance of community engagement to the success of the project by sharing stories of local homeowners taking a new found pride in maintaining their homes. 

About Greater Ohio Policy Center
Greater Ohio Policy Center (GOPC) is a non-profit, nonpartisan organization based in Columbus and operating statewide. GOPC champions revitalization and sustainable growth in Ohio, advocating policies and practices that enhance its metropolitan regions as economic drivers and preserve Ohio’s open space and farmland. For more information about GOPC and our independent research, public education, technical assistance, coalition-building, and advocacy activities, please visit:

About Thriving Communities Institute
The Thriving Communities Institute, a program of Western Reserve Land Conservancy, works with communities and organizations regionally to transform vacant and unproductive properties into new opportunities to attract economic growth, add green space to cities and support safe, beautiful neighborhoods. The Thriving Communities Institute is based in Cleveland, Ohio. For more information, visit:


Friday, November 1, 2013

Hope Now Quarterly Fly-In

Last week I had the chance to join some of my colleagues in the housing industry at the HOPE NOW Quarterly Fly-In.  I cannot say enough good things about this organization that works to keep Americans in their homes. 

To learn more about HOPE NOW and our discussion last week, check out the summary below. 

Moderator:  Laurie Maggiano, Servicing and Secondary Markets Program Manager, Office of Research, Markets, & Regulations, Consumer Financial Protection Bureau

Robert Klein, Chairman and Founder, Safeguard Properties
Peter Skillern, Executive Director, Reinvestment Partners
Margo Geffen, Twin Cities Community Lank Bank LLC
Margaretta Lin, Esq., Department of Housing and Community Development, City of Oakland

On Thursday, October 24, Robert Klein joined a group of experts at the Hope Now Quarterly Fly-In to discuss vacant and abandon properties.  HOPE NOW is an alliance between counselors, mortgage companies, investors, and other mortgage market participants. This alliance is designed to maximize outreach efforts to homeowners in distress to help them stay in their homes and create a unified, coordinated plan to reach and help as many homeowners as possible. The members of the alliance believe that by working together, they will be more effective than by working independently.

 Joining Klein was Peter Skillern, Margo Geffen, and Margaretta Lin whom individually discussed how vacant and abandon properties impact their communities and described the solutions they have implemented in their regions. 

 Klein opened his remarks by discussing the devastating effects of blight on communities nationwide and steps that must be taken to combat this issue.  Drawing on his extensive experience as the former CEO of Safeguard Properties, Klein emphasized the need for vacant and abandon properties to be fast-tracked through the foreclosure process in order to prevent them from become a burden in their communities.   Klein cited that some states have already implemented laws supporting this process while several others are taking similar legislation under consideration.  Klein noted that implementing this type of law on a statewide scale supports the idea of taking a holistic approach to revitalizing America’s communities.  To support this concept, he pointed to the Slavic Village Recovery Project underway in Cleveland, Ohio. 

Klein described Slavic Village as a blue collar neighborhood, built by immigrants that once was a vibrant community.  Like many communities across the country, Slavic Village was devastated by the national housing crisis and continues to struggle in the aftermath of economic decline. After having the highest rate of foreclosure in the nation in 2007, Klein called rehabilitation efforts futile in the face of hundreds of vacant and abandoned homes.  This led Klein to develop the concept on which the current project is based on. 

Klein described the Slavic Village Recovery Project as a private for profit/non-profit partnership formed to redevelop the historic Slavic Village neighborhood by taking a holistic approach to community revitalization. The first of its kind, this strategic collaboration is a diverse alliance between Forest City Enterprises, RIK Enterprises, Slavic Village Development, and Cleveland Neighborhood Progress. 

Klein’s coalition has partnered with lenders, servicers, and public entities in the area to acquire large numbers of blighted, at risk, or vacant properties concentrated in the target area of Slavic Village. The holistic approach, using both demolition and rehab, is being viewed a case study for the creation of an affordable housing model that can be replicated in communities around the Country.  The project does not use public funds but has support from the City of Cleveland, as well as local stakeholders. 

Brad Dwin, Hope Now Director of Communications offered the organization’s support of the Slavic Village Recovery Project, “Since 2007, HOPE NOW has been instrumental at facilitating partnerships between the mortgage industry, the non-profit community, federal agencies and state level partners, for the benefit of finding viable mortgage solutions for homeowners,” said Dwin.  “Over the past several months, we have noticed a real need to analyze the challenge of abandon properties and bring these same partners to the table to discuss the issue and formulate a thoughtful plan for addressing the issue. We are focused on nurturing public-private partnerships to the fullest in order to meet this goal. HOPE NOW supports all efforts that promote stable communities, and we applaud Robert Klein’s work with Slavic Village.”