Diligent Loan Solutions
Presentation for:
Presenter:
Donna Schmidt
THE COST OF SERVICING
Data Compiled from “Servicers Search for ‘Goldilocks’ Size for Max Profits” article in National Mortgage News 9/14/2015, plus personal notes
Average Cost to Service
$300.00
$250.00
$200.00
$150.00
$100.00
$50.00
$0.00
1995
2008
2014
**
COST COMPOSITE
• Typical Business expenses – supplies, utilities,
phone service, etc.
• Employee Expense – 68 to 75% overall costs
• Systems, software, other automation
• Risk Aversion
• Set aside for losses
The industry is now demanding a level of perfection
that can not be obtained by any human being alone
Reward vs. Risk Evaluation
One mistake on one loan can wipe out the service fee
income for an entire portfolio!
• Typical Service Fee Income per month is $30 - $50
• A portfolio of 5,000 loans generates approximately
$150,000 - $250,000 of monthly service fee income
• One mistake or oversight for a short sale, on a
property with severe negative equity, could lead to a
denial of a claim payment resulting in losses that are
at least as much as the entire monthly fee income.
For sub-servicers the affects are more devastating
AREAS OF GREATEST EXPOSURE
• VA Compromise Sales – for IRRL refinanced loans. Only way to
avoid these losses is not to participate in IRRL.
• Missing a Vacant Property – damage occurs due to negligence
• FHA Treble Damages for failing to engage in Loss Mitigation
• FHA Indemnification charges – multitude of reasons – but for
servicing, primarily it relates to default servicing practices
• FHA Mortgagee Review Board – Civil Money Penalties – repeated
failure to comply with published Handbook requirements
• FHA Missed First Legal Deadlines
• Conventional Insurers – failure to file Notice of Defaults
• Inappropriate loss mitigation option granted or miscalculation
• FHA failure to maintain properties according to P&P schedules
• FHA failure to convey a property timely
Self - Service
Automation – to reduce human error
Aggressive Compliant Quality Control Plan
Staff Training – multiple sources
Quality Assurance Procedures
The most costly of the 4 approaches – find weaknesses & build
defenses
• What is the cost of exposure?
• What is the cost of avoidance?
• What is the most cost effective approach to limit exposure?
Automation to reduce Human Error
• Ensure maximum usage of current servicing systems
• Communicate with vendors via electronic transmissions as
much as possible
• Create excel spreadsheets to perform difficult calculations
and to alert staff to areas where they may be making a
regulatory error.
• Create customized database solutions to monitor key
procedures when servicing systems fail critical management.
• Online per loan cost applications are available for some loss
mitigation procedures
• Purchase other pre-packaged software or other system
solutions
Benefits of Automation
• Time savings – Loss Mitigation calculation tool can convert
an hour long process into a 10 minute process.
But time savings is far less important related to today’s
regulatory concerns:
• Increase accuracy – reduce risk of returning FHA Partial
Claim funds for incorrectly calculating the target payment or
maximum claim amount.
• Uniformity of Results – reducing the risk of UDAP claims for
discriminatory administration of loss mitigation options.
Quality Control Plan
The Key – Treat it like a biopsy report from your doctor!
1. DO IT – when it is prescribed – monthly or
quarterly
2. READ IT – as soon as it is delivered
3. REACT TO IT – like your life depends on it
4. MAKE LIFESTYLE CHANGES – this is critical – to
reduce the possibility of recurrence, re-train staff,
update procedures, make recommendations for
system changes
Findings in a good QC Plan
• Failure to utilize the servicing system effectively to gain even basic
data for QC analysis and effective management of the critical
processes
• Property Inspection export was programmed incorrectly and loans
in one foreclosure status were missed in the request for monthly
inspections
• SFDMS Reporting was handled by the servicing system, but staff
was not updating a key field that translated the first legal action
report code
• Loss mitigation staff were miscalculating income, which
inappropriately provided more assistance than what the borrower
actually needed
• Claim files were missing documentation to support expenses
claimed to insurers
More on Quality Control Plans
Benefits:
1. Find mistakes quickly
2. Best source in identifying when additional training is
needed
Failures:
1. The errors are exposed after a loss has been incurred
2. The QC Reviewer MUST not assume anything – but must
independently validate EVERYTHING. Trusting notes, field
data, etc. could hide fraud. Always recalculate, check all
documentation and reconstruct all aspects of what is
being tested
Staff Training
Practical Training
• Weaknesses revealed in QC Plan
• Industry regulatory changes
• System updates or changes
Multiple Sources
• FHA Offerings
• AllRegs
• Independent Consultants
Quality Assurance
The most costly of the 4 approaches – find
weaknesses & build defenses
• What is the cost of loss exposure?
• What is the cost of avoidance?
• What is the most cost effective approach to limit
exposure?
Quality Assurance
This is the process of adding additional steps, oversight and
checks and balances.
EXAMPLE1: Foreclosure Committee Review Checklist – required by FHA –
should be done for all loan types.
EXAMPLE2: Management signoff accepting proposed HUD1 for PreForeclosure, Compromise or Short Sale.
EXAMPLE3: Tracking calls made per collector. Average time per call. # of
loans touched.
EXAMPLE4: Property Preservation bills must be reviewed and signed off by
2 people – the person ordering it and a supervisor familiar with the
insurer/investor’s requirements.
Stories from the Battlefield
• Training Error - One Collector cost a client $300,000 in interest
curtailments due to missed first legal deadlines – in 1 year.
• Fraud Error – One Collector seemed to be completing call lists faster then
others, yet default rate was elevated.
• Reconciliation Error – Inspection reports were not coming back timely
and therefore were not claimable
• Manual Entry Error – Inspections were not being ordered uniformly –
property damaged
• Lack of Automation Error – Loss mitigation calculations were off when it
came time to post.
• Proof Reading Error – Loan Modification document – new P&I typed
incorrectly – resulting in negative amortizing loan
• Vendor Management Error – Failure to review P&P invoices prior to
payment lead to an over payment of $20,000 for services that were not
claimable.
SUBSERVICER OVERSIGHT
Small – >100,000
•
•
•
•
•
Risk of insolvency
Review performance of Quality Control Plan
Ask what steps management takes to reduce the greatest areas of risk
exposure
Ask about cash management – how do they ensure they are getting claims
paid quickly, escrow and corporate advances recaptured
Request copies of external audits – redacted if necessary
Large – 100,000 +
•
•
Less risk of insolvency
Focus on borrower experience and loss mitigation
Thank you from
Also offering WaterfallCalc.com – the only FHA Loss Mitigation
Waterfall analysis and calculation web-based application!
5020 East Beltline Ave, Suite 205J
Grand Rapids, MI 49525
Phone: (616) 570-0199
E-mail: dschmidt@assistanceoptions.com