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Helping struggling homeowners: leading servicers are finding new ways to reach and help borrowers in trouble to avoid foreclosure.

As mortgage industry professionals, we know that borrowers come in many different forms--from first-time buyers and savvy real estate investors to those on fixed incomes. More important, these borrowers have specific preferences when it comes to contact with their mortgage companies. While some borrowers may prefer face-to-face, direct communication, many--especially those of a younger generation--may favor electronic communication. [??] With foreclosure and delinquency rates on the rise, now more than ever it is imperative for mortgage companies to "know the customer" and demonstrate a valued commitment toward customer service. [??] According to a recent report by Atlanta-based Equifax Inc. and West Chester, Pennsylvania-based Moody's, 2.33 percent of mortgages were delinquent at the end of the third quarter of 2006--the highest level since 2003. Even more disturbing, many of today's homeowners are walking away from their homes due to rising loan rates and the simple fact that, for the first time, they owe more than their homes are actually worth. [??] Realty-Trac Inc., Irvine, California, a source of foreclosure listings, notes that more than 1 million U.S. properties entered some stage of foreclosure in the first 10 months of 2006--a 26 percent jump from 2005.

With the ultimate goal of reducing delinquency, mortgage servicers have developed a number of loss-mitigation options to suit the communication styles and personalities of individual borrowers. By implementing these tools, servicers are trying to interact with the more than 50 percent of those homeowners who enter foreclosure without ever meeting with their mortgage servicer.

Various paths to delinquency

The Homeownership Preservation Foundation (HPF), Minneapolis, a private charitable foundation established to help reduce foreclosures and preserve homeownership for American families, runs a national hotline (888-995-HOPE) for struggling homeowners to receive free, expert foreclosure prevention counseling 24/7.

"Our caller data suggest that homeowners who face foreclosure are living through a 'perfect storm' of several unforeseen crises hitting them within a short period of time," says Colleen Hernandez, HPF's president. "Many homeowners can handle one crisis--for example, a spouse's job layoff. It's when this is combined with another tragedy, like a medical difficulty or death, that financial security begins to unravel," says Hernandez.

Leading foreclosure factors among 888-995-HOPE callers include income loss (layoffs), poor budget management or a sudden drop in income (loss of a second job, loss of overtime pay). Other factors include death, divorce and medical crises. Combining any of these factors with an adjusting-mortgage-rate product can speed foreclosure. For example, more than $1 trillion in U.S. home mortgages have interest rates that will adjust sharply in 2007, which is likely to squeeze some owners out of their most important investment.

More recently, natural disasters, such as hurricanes, tornadoes and floods, have had devastating effects on many homeowners' ability to make their mortgage payments. There are, however, numerous organizations whose sole purpose is to counsel borrowers through these hard times and help keep them in their homes.

Special cases: Loss mitigation in times of natural disaster

Minneapolis-based Homecomings Financial LLC and Horsham, Pennsylvania-based GMAC Mortgage LLC--two indirect, wholly owned subsidiaries of Minneapolis-based GMAC ResCap, one of the nation's largest real estate finance companies--offer loss-mitigation options to those affected by natural disasters. In the wake of Hurricanes Katrina and Rita, Homecomings Financial and GMAC Mortgage immediately offered support and assistance to homeowners who had severe property damage in the areas most heavily impacted.

Within days of the storms, the companies provided relief via suspension of credit and late fees to thousands of borrowers. The companies also stopped all foreclosure activity against any homeowners in the Federal Emergency Management Agency-declared (FEMA-declared) disaster areas.

A special loan-modification program was developed to provide homeowners an opportunity to begin rebuilding their lives. Additionally, a dedicated telephone line was established for hurricane victims to have direct access to knowledgeable associates in the days immediately following the hurricanes. Once the calls were received, the borrowers' situations were prioritized in order of need.

As one of the largest mortgage servicers in the industry, GMAC Mortgage's loss-mitigation department also called on other parts of its business, such as customer care, to rally every appropriate resource to benefit homeowners.

Approximately 7,000 forbearance plans were established, and before their expiration, the company proactively placed calls to counsel those customers on next steps. Additionally, more than 1,200 loan modifications were completed in 2006 for GMAC Mortgage borrowers affected by the hurricanes. By proactively offering multiple options to these borrowers, the company established a high level of trust between borrower and servicer.

Day-to-day loss-mitigation strategies

While the importance of a strong loss-mitigation department becomes especially apparent during disaster situations, it remains significant during the course of "regular" business as well. The companies' loss-mitigation departments employ various high-level strategies for preventing default and eventual foreclosure, including finely honed communication methods, targeted campaigns, real-life solutions and experienced associates.

First and foremost, loss-mitigation professionals identify the most effective and efficient method of borrower contact. Most borrowers have a preferred method of contact, and while some may want to discuss details about their hardship over the phone, others may prefer a face-to-face meeting.

GMAC ResCap's primary methods of contact are a voice-response unit, where borrowers handle their payments and transactions electronically over the phone; associate interaction, where homeowners discuss the details of their account with a person; and mail, where monthly mail campaigns are utilized to increase contact. A secondary method of contact is face-to-face, where homeowners attend local in-person sessions and work with loss-mitigation associates to develop solutions on-site. This method is used most commonly in the wake of natural disasters, such as Hurricanes Rita and Katrina.

GMAC Mortgage and Homecomings Financial's loss-mitigation departments employ one of many strategies to target delinquent borrowers, including mail, outbound calling and inbound calling, educational campaigns and a separate entity devoted to homeownership preservation. Mail strategies are tailored based on stage of delinquency and foreclosure time. For example, loans in Texas, which have a shorter foreclosure period, receive letters at different times in the foreclosure process than those in states with longer foreclosure periods, such as Pennsylvania.

Additionally, incentives also may be used to increase the probability of contact. In outbound calling, a blend of automatic and manual outbound campaigns is utilized. With inbound calls, once a determined solution is in progress, scripting is utilized to route the call directly to the loss-mitigation associate working on the solution. This method is extremely useful in short-sale and deed-in-lieu negotiations.

In terms of solutions, loss-mitigation associates can offer an incentive to borrowers to list/sell the property. Additionally, data from property inspection reports are utilized to determine which properties are vacant, and these properties are solicited for a deed-in-lieu.

Each day, the loss-mitigation associates' primary focus is on making asset-level decisions. They excel in this area due to their extensive training and years of expertise in the mortgage industry.

HOPE for homeowners

Given the extensive commitment that Homecomings Financial has made to loss mitigation, in June 2003 the company formed a special team, HOPE (Home Ownership Preservation Enterprise), to reach homeowners face-to-face. The mission of HOPE is to reduce foreclosure rates for the company and keep families in their homes.

The HOPE team works with high-risk customers via relationships with federal government agencies such as the Department of Housing and Urban Development (HUD) and the Federal Deposit Insurance Corporation (FDIC). Primary markets with both offices and associates include Atlanta; Chicago; Cleveland; Dallas; Detroit; Houston; Indianapolis; Memphis, Tennessee; Philadelphia; and St. Louis. In addition, there are 12 secondary markets where HOPE assists borrowers, but does not have a full-time staff presence or offices.

Dividing the country into key regions gives HOPE a localized presence that provides additional asset-level and neighborhood-level intelligence, leading to a better understanding of markets at a local and state level, improved loss-mitigation counseling and neighborhood preservation.

HOPE focuses strictly on face-to-face interaction with homeowners requiring a higher-touch approach. There are three primary components of HOPE: providing education and awareness, providing face-to-face counseling in the 22 identified markets around the country, and providing on-site assistance during natural disasters.

The program's targeted customers are those with accounts at least 60 days delinquent and those who have had no contact with the mortgage company. HOPE's partnership with local nonprofit housing organizations, local city government and faith-based leadership drives more homeowner leads, increases homeowner acceptance and expands nonprofit understanding of mutually beneficial outcomes. Additionally, the complementary services offered by HOPE yield reduced foreclosures among its core group of borrowers.

In 2006, HOPE was directly responsible for keeping in their homes more than 950 families headed down the foreclosure path, spearheaded by a series of 39 counseling events where loss-mitigation associates met face-to-face with homeowners at risk of foreclosure. These one-on-one meetings enabled loss-mitigation associates to develop customized resolutions in real-time. A total of 1,182 customers attended and benefited from these face-to-face meetings. In addition, HOPE leads workshops and seminars to educate Homecomings Financial borrowers about their choices when faced with a delinquent loan.

By making local phone calls and conducting regional meetings, HOPE acts as a direct liaison between customers and their mortgage servicing platform. According to a 2005 poll by Freddie Mac and New York-based Roper Public Affairs and Media, more than six in 10 homeowners delinquent in their mortgage payments are not aware of loss-mitigation services that mortgage lenders offer. These homeowners often fail to contact their lender because they're embarrassed, don't believe the lender can help and/or believe it would cause them to lose their home more quickly.

HOPE gathers information so the servicing platform can make better-informed decisions. In essence, HOPE acts as the "eyes and ears" of the local market, offering customers a real-life view of risks and feasible resolution options.

A program called Mobile HOPE enables HOPE to respond nimbly and quickly to any type of natural disaster or region al economic downturn. A HOPE representative may visit the area and provide one-on-one counseling or a team of people may travel to a city to provide support. This early-response team can be deployed not only in the markets HOPE currently serves, but anywhere in the country that has borrowers in need.

In the wake of Hurricanes Rita and Katrina, HOPE mobilized Homecomings Financial associates to perform more than 1,500 personal visits to Gulf Coast region customers in an attempt to contact them, analyze their situation and offer a helping hand. This team went door-to-door meeting customers and sharing information on how they could assist, as well as offering redeemable gift cards to local retailers and other means of support.

Through HOPE, Homecomings Financial also established a local servicing office in New Orleans to offer homeowners assistance via face-to-face interaction. The response from borrowers was overwhelming.

Hundreds of customers wrote personalized letters, sent faxes and made telephone calls to show their appreciation for the program. One New Orleans woman wrote, "My husband always says business is about relationships. You guys are doing great business."

In 2007, HOPE is expanding its outreach to customers to raise awareness and educate them about their options when their loan is delinquent. HOPE held 39 workshops and seminars during 2006, but hopes to boost that number to upward of 60 in 2007, while also increasing the number of families assisted by 50 percent over the number assisted in 2006 (950).

Loss-mitigation and bottom-line effect of customer service

Successful servicers understand the individual needs of their customers, and are fully committed to developing resolutions with those needs in mind. By recognizing the unique circumstances of each borrower, servicers can help prevent foreclosures while at the same time eliminating the fear, stress and anxiety that often contribute to a cycle of delinquency.

GMAC Mortgage and Homecomings Financial service the loans of a combined 3.5 million households. The combined servicing operations rank as the sixth-largest servicing operation in the mortgage industry, servicing a combined $449.1 billion in loans at the end of the third quarter, according to the National Mortgage News Quarterly Data Report.

The organization services loans that are originated through one of GMAC ResCap's origination channels (GMAC Mortgage,, Homecomings Financial and GMAC Residential Funding), as well as those loans it acquires from other mortgage lenders. The combined operations include GMAC Mortgage Subservicing, which is ranked as the second-largest subservicer in the industry.

Javid Jaberi is senior vice president at Homecomings Financial LLC, an indirect, wholly owned subsidiary of Minneapolis-based GMAC ResCap. He can be reached at
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Title Annotation:Cover Report: Servicing Trends
Comment:Helping struggling homeowners: leading servicers are finding new ways to reach and help borrowers in trouble to avoid foreclosure.(Cover Report: Servicing Trends)
Author:Jaberi, Javid
Publication:Mortgage Banking
Date:Feb 1, 2007
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