Default Management: Know Your Options
Written by: Heather Papows, Senior Loan Servicing & Secondary Market Consultant
The current state of our housing market has forced lenders to make credit decisions based on current market valuations. For now, lenders are happy to have seen the loan application hit their pipeline and subsequently move to their closed loan report, keeping business moving forward. But it’s hard to ignore that fleeting fear in the back of our minds: What could happen if one piece of the puzzle moves- a housing valuation dip, a spike in job losses, or some other unforeseen event. Some homeowners will be able to weather the storm, but what about those who may face one of these unexpected events that directly affects their ability to repay?
Default rates remain low, but it may not stay that way forever. Many lenders are gearing up now for a change in this landscape, hoping for the best but planning for the worst. The process can feel daunting, however-- especially when you’re holding a mix of portfolio and GSE owned loans.
Follow these suggestions to get you on your way when it comes to knowing your options for default management solutions:
Develop (or review existing) procedure guides. You may have separate guides for each of the GSE’s as well as for portfolio, but you want to marry as much of the process as you can to create uniformity and equality when it comes to offering solutions to customers.
Refer directly to GSE guides to ensure you’re working on the most up to date requirements, utilizing the newest decisioning platforms for GSEs, and that you’re aware of what their expectations are for servicers.
Make sure to utilize a worksheet or form to document your workout solution methodology and results. Think of your school-aged math problems: show your work!
Design your workflow with hierarchy-approached logic. The evaluation process for each loan should flow through the same list of workout options. The idea here is to ensure you consider each option, arriving only at the solution that fits with that scenario’s specific criteria.
Train your staff. Make sure that those responsible for managing this process are comfortable with the procedure guides and worksheets/forms. These documents should not supplement the knowledge and understanding each key player should have in this area; they should, however, act as a supporting resource and reference for applying your procedures to the process!
As you evaluate your preparedness in the above areas, call on the experts to ensure you’re able to focus on what’s most important when the time comes: helping your customer/member retain their home! SCA remains your trusted resource to navigate you through this process – assessing and updating your processes and internal guides to ensure accuracy and completeness, while also providing training and confidence to you and your staff. For more information on ways SCA can help, please contact our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617.
