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Pulling houses back from the brink.

Plucking delinquent low-income borrowers back from almost sure foreclosure takes a certain kind of servicer, with an innovative system and a lot of borrower sensitivity. This company has got such a system and it's working like a finely tuned machine.

Mortgage bankers and other lending institutions have perhaps viewed mortgage loans to low- and moderate-income borrowers as almost a gratuitous act. Because higher delinquency rates can accompany these less-affluent borrowers, the most some lenders expect to realize from such "high-risk" venturing is, perhaps, a little community good will.

But there is a way for mortgage bankers and others planning to make loans to lower-income homebuyers to actually profit from such lending, and from the servicing that goes along with it.

Since 1975, National Loan Servicenter, Inc., (NLS), Washington, D.C. has specialized in curing mortgage-payment delinquency. Today, NLS is the nation's most successful force in servicing nonperforming home loans. This niche has taken the company from a tiny, townhouse basement to state-of-the-art headquarters in downtown Washington, D.C., with satellite offices in Houston and Atlanta.

Counted among the company's clients are the Resolution Trust Corporation (RTC), the Department of Housing and Urban Development (HUD), Fannie Mae, GNMA, Freddie Mac, FHA, VA, numerous city and state governments, banks and local housing finance agencies. In addition to all aspects of mortgage-loan servicing, NLS's services include asset management and disposition and a community revitalization bond program.

NLS President Jim Griffin chose nonperforming loan servicing as a career because, simply put, he saw it as a challenging opportunity. It was a challenge that he believed in. "Everyone in the industry was after plain-vanilla mortgage loans," Griffin recounted, "meanwhile, average homeowners who held 'riskier' loans were falling delinquent and subsequently losing their homes. I figured something had to be wrong."

What Griffin went on to discover was what would work to keep these people in their homes. "The opportunity to profit is the right reason to be in this business," according to Griffin, "Yet, it is the very quest for such gain that makes it possible for certain borrowers to fall into delinquency."

NLS' Griffin adds, "I have found that the only way to succeed in collecting on traditionally nonperforming loans is to link everything--service, service providers, systems--to one goal, and that is educating and motivating borrowers to pay on time." Of course, when borrowers pay on time, NLS profits, he quickly notes.

When NLS acquired the servicing rights on HUD's Section 312 rehabilitation loans in 1981, the challenge was crystal clear. The incidence of delinquency among those loans was astonishingly high. Moveover, conventional collections techniques threatening foreclosure were ineffectual. HUD was not readily inclined to foreclose on low-income borrowers who were apt to become interminably homeless as a result.

As NLS staff members began contacting Section 312 borrowers about their delinquencies, two basic reasons for payment inconsistency were discovered. First, most delinquent borrowers wanted to pay regularly, but were stifled by financial difficulties. On the other hand, there were other delinquent borrowers who avoided paying simply because they wanted to.

Immediately, NLS modified its services and systems to address these two dynamics. To help financially strapped borrowers make their payments on time, NLS became one of the first servicers in the nation to add housing counseling to its mortgage loan-servicing efforts.

Resident housing counselors were on the phones day and night, working with borrowers and various state and local offices. Beginning with the cities where the loans were originated, the counselors referred elderly homeowners to agencies providing tax abatements. They linked other homeowners, amenable to renting out spare rooms, to human resource agencies that listed people needing homes.

And, when outside help wasn't enough, they looked inside. Carey Hicks, team leader, federal sector loans II at NLS, recalled that, "Where warranted, we adjusted payment amounts and structured repayment agreements. We worked very closely with highly leveraged homeowners, helping to put them in the position to pay on time and learning new ways to effectively deal with their special needs."

Motivating borrowers who chose not to pay, however, required something a little different--specifically, continuity. Hicks, who headed the NLS collections effort when the firm first acquired the servicing rights for HUD, learned that it was useless to threaten or harass these delinquent borrowers. These borrowers believe that foreclosure is not likely to happen on their subsidized loans. "So," Hick explained, "we implemented instead, two continual strategies. With HUD approval, we beefed up collections activity. At nine days, rather than the industry standard of fifteen days' delinquency, we began calling and, thereby, counseling."

Every 9th, 15th, 30th, 45th, 60th and 90th day, a delinquent borrower would receive a call from an NLS loan counselor. The borrower would also receive late notices and demand letters throughout the cycle. Because these borrowers had not been accustomed to repeated demands for payment, the continuity of contact motivated payment.

Even though intentionally delinquent borrowers are, by far, the most difficult to motivate--by staying in touch, a rapport is developed. Additionally, NLS refused to accept partial payments. Partial payments are considered to be any payment that is less than the total amount due for a given period. "Whether it is part of one month's payment, or a full month's payment, when more than one month is due, we reject them," said Hicks.

The reason for this, Hicks explained, is because the rejection makes borrowers worry. Not restoring the account makes unwanted interest and late charges accrue. "And," Hicks said, "by the time the collection notices and letters start coming in, and additional expense to their loans starts adding up, even the most reluctant borrowers will then call our toll-free number. Once we explain our policy to them and they understand that they cannot continue sporadic, partial payments without any cost to them, they are more motivated to pay."

Those borrowers who refuse to make payment on the due date, but who still wish to beat the collection queue on the ninth day, often send their delayed payments through NLS' arrangements with Western Union QuickCollect and Telewire services. Approximately 3 percent of the otherwise delinquent borrowers pay on time this way each month.

So, it is through housing counseling, earlier and repeated stages of collections activity, automated payment processes and a special rapport developed from ongoing communications with borrowers, that has enabled NLS to achieve dramatic results for HUD--reducing, by more than half, the delinquency rate on thousands of Section 312 loans that had been inactive for years.

NLS also operates the Borrower Education Campaign. As Marcia Griffin, NLS vice president of corporate development, explained, "We had frequently talked about finding a way to not just cure delinquency, but prevent it." As delinquency rates across the country began to rise, NLS, known as the "problem loan servicer," began receiving more public and some private loan portfolios that were in, or approaching default. Housing counseling provided NLS with daily access to delinquent borrowers and "the opportunity to get to know them--to determine the root cause of their delinquency," Griffin said. The decision was made to conduct a borrower survey to help NLS gain some answers.

Feedback from the survey showed that as much as 75 percent of borrower delinquency was directly attributable to a lack of knowledge about homeownership, its responsibilities and value. "Quite frankly," Griffin said, "we realized that, while technology could expedite collections, only education would expedite payment." Consequently, NLS began the Borrower Education Campaign, a program that imparts homeownership values, in a sensitive, informative manner, through every contact with the borrower, as long as NLS services the loan.

The campaign's strategy is specifically designed to help low- to moderate-income borrowers to:

* recognize homeownership as a timeless asset, not an endless liability;

* develop pride in always paying their mortgage first;

* remain stable and creditworthy; and

* avoid needless delinquency and foreclosure.

Through every borrower contact, NLS received another chance to reinforce good payment behavior. As an extra step, NLS sent out a "Borrower's Bill of Rights" to every borrower. This document specifically defines the borrower's service entitlements and, more importantly, lets borrowers know that NLS values them. "It is not particularly surprising to see how hard people will try to meet obligations, when they feel they are respected, valued and not alone," Griffin added.

As a matter of fact, the strategy has worked so well that borrowers are beginning to call NLS when problems arise, instead of the other way around. Actually, NLS services more than one billion dollars of predominately nonperforming loans, however, very few are ever referred to in-house legal services. And of those that are referred for legal action, nearly 70 percent of those are reinstated. For NLS, this means fewer foreclosures and a greater recovery for investors.

Motivating employees is also a priority at NLS, because of the special challenges that nonperforming loan servicing presents. First, NLS helped its employees become more sensitive to borrowers with a series of seminars on customer training, borrower sensitivity and quality control. Eventually these sessions became part of the "Nurturing Leadership Skills" (NLS) University, where experts from within and outside of the company teach classes to participating employees. Attendance is motivated by the desire to receive certificates of completion, which are credited towards corporate undergraduate and graduate "degrees." The degrees are factored into consideration for promotion within the company.

One for all...all for one

New performance measurements take into account customer satisfaction. Corporate standards, team and employee evaluations are all linked to providing 100 percent client and borrower satisfaction. Team members are eligible for salary increases only if the entire team satisfies the established performance standards. The "one for all, all for one" approach places accountability with the team and its members and empowers them to produce results by working together.

Also making sure that everyone and everything works to the satisfaction of the borrowers--and thereby the investors--is the Borrower Services Group (BSG). This unit receives all borrower inquiries and connects callers directly to the team responsible for their account. BSG also monitors and logs types of calls and returns calls to a designated percentage of all borrowers to ensure their inquiries were resolved to their full satisfaction.

Because the NLS servicing portfolio requires handling the specific needs and requirements of a variety of private-sector loans, the idea of having servicing teams dedicated to certain loan types instead of to particular loan functions was adopted.

Jan Ulsch, assistant vice president overseeing NLS acquisitions and conversions, has a group that consists of loan processors, a representative from the servicing team, who will manage the loans and members from the other support teams (information services, investor accounting, borrower services and records center). Ulsch, who is the acquisition administrator as well as overall team leader, said, "Because we all work together as a team, information is accurately and quickly converted. Everyone brings their area of expertise to the portfolio, so that everything can be arranged in the manner most suitable for all concerned. Even better is the fact that questions get answered and potential problems get resolved, from the very beginning.

Valencia Scott, team leader for local governmental loan servicing at NLS, added, "Nothing slips through the cracks, because we are in total control. Where, before, a case might pass through three departments and any number of hands before getting fully resolved, it now goes straight from our department to the borrower or investor."

Another important advantage is the ease with which cross-training can occur. Skills are now freely shared among team members who see themselves as part of the same unit. Under the former departmental arrangement, it was not only difficult for employees to float into other learning positions, it was generally not desired. Beyond the exchange of case-relevant information, the escrow, loan servicing and legal departments simply preferred not to share their knowledge and skills.

The team concept has also quelled the tendency for some to expedite a case just to move it along. Because nothing leaves the team until it's done right, there is a distinct advantage to be had when everyone devotes the time, energy and effort needed to properly resolve every case.

Carolyn Yates, NLS team leader for federal sector loans I, endorses the team concept and said that it provides clients and borrowers the ease of one-stop access to answers. There is no longer a need to transfer callers from department to department. "Low- to moderate-income borrowers, in particular," she said, "appreciate our borrower-sensitive correspondence. They feel as though their status as homeowners is now as valued as that of more affluent borrowers."

Despite the success NLS has had with servicing nonperforming loans, it has not been an easy task or a simple business to be in. As the president of NLS said, "Unless a company wishes to totally commit to this kind of business, it is not likely to be worthwhile." Griffin added that, "A business associate of mine says we're better collectors than the mob. No matter the choice of words, we're a very different animal--not particularly envied, but we have our reason for being."

Bernice S. Smoot is a marketing/communications specialist with National Loan Servicenter, Inc. in Washington, D.C.
COPYRIGHT 1992 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:loan servicing services of National Loan Servicenter Inc.
Author:Smoot, Bernice S.
Publication:Mortgage Banking
Date:Oct 1, 1992
Words:2186
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