Loss mitigation is a negotiation process between a property
owner and the property owner’s lender to redefine the terms of
the mortgage to prevent a foreclosure. Loan modification and
short sale are two examples of methods to work-out the problems
with a mortgage. Both loss mitigation methods attempt to
stabilize the risk of loss to the property owner’s lender. They
are an attempt avoid the potential loss to property owner’s
lender from a foreclosure and auction sale of the property.
Before 2007
Historically, the Loss Mitigation Department of a mortgage
service company was one of the smaller departments in a mortgage
service company. Mortgage delinquency rates had been very low
for many decades. Often, loss mitigation was a part time
function for the collect department. Usually, it was possible to
modify a mortgage within 3 to 6 weeks. A mortgage service
company employee might handle the entire transaction from the
first telephone call to the issuing the final mortgage
modification agreement. Concluding a short sale took little
longer than any other sale. There were few modifications and
short sales. Most mortgages were paid on time and property
values generally were greater than mortgage balances. The loss
mitigation negotiators were experience mortgage professionals
with practiced experience applying the loss mitigation
guidelines for the mortgage.
A mortgage requiring more than 90 days in loss mitigation was
the rare exception. A mortgage in loss mitigation for more than
90 days was not average. Generally, it meant the borrower was
not fully engaged and cooperative. An unresolved mortgage
deficiency lasting more than 120 days generally indicated the
property owner was not able to work out the mortgage with the
property owner’s lender. For this reason, the loss mitigation
guidelines for most mortgages required the mortgage service
company to initiate foreclosure action when a mortgage was more
than 90 to 120 days delinquent.
After 2007
They call it the “mortgage meltdown”, “financial tsunami”,
“global banking firestorm”. The current financial crisis has
affected most every country in the world. It has had a dramatic
impact on mortgage borrowers, mortgage loan owners and mortgage
service companies. For the first time in recent history,
mortgage borrowers and mortgage loan owners are confronting
financial instability at the same time. Mortgage loan owners are
working as diligently as mortgage borrowers to find a common
solution. It has become clear to mortgage loan owners that their
best interest aligned with the best interest of the mortgage
borrower. Mortgage loan owners want mortgage borrowers to keep
their property. The loan owners can no longer easily afford to
take property and absorb the larger loss from a foreclosure.
Impact on Loss Mitigation
No longer a minimal department, loss mitigation had become high
volume operation with thousands of fulltime employees. Many loss
mitigation departments are open every day of the week. Some are
open 24 hours every day. The volume of calls, messages, fax
transmission and emails is staggering and growing. The growth
approaches exponential proportions. For example, a large
national mortgage service company with 300 employees in the loss
mitigation department now employee 12,000 fulltime employees. It
has 4 call centers in the United States and an overflow call
center in India. It is averaging almost 20,000 fax messages
every day. Their experience is typical for the mortgage service
industry. Most people in the industry believe the growth trend
will continue.
Processing Turnaround Times
What took days before 2007 began to take weeks by the end of
2008. A typical time to conclude a mortgage modification was 60
to 90 days. As the crisis deepened the processing turnaround
time got longer. On March 4, 2009, President Obama announced The
Making Home Affordable program to allow millions of Americans to
restructure or refinance their mortgages, and may help keep many
from losing their homes. He told Americans to call their
mortgage service companies to find out if their mortgage would
qualify for the program. Mortgage service companies were
inundated with calls.
It has not been possible for mortgage service companies to
hire and train people fast enough to minimally handle the loan.
The result has been longer turnaround times supported by less
experienced, reasonably unskilled and marginally informed
employees. The burden has fallen on mortgage borrowers who
typically experience:
- Uncooperative employees.
- Never speaking to the same person.
- Waiting long times on hold.
- Representatives who often give conflicting information.
- The fax messages and correspondence which is often lost
and must be resent.
- Refusals to confirm agreements in writing even when
requested to do so.
Confirming Communication
Many mortgage service companies lose correspondence. Generally,
it is necessary to resubmit correspondence more than 50% of the
time before receipt can be confirmed. It is now necessary to
verbally confirm receipt by the mortgage service company for any
correspondence sent to them. When speaking to an employee, it is
important to confirm their statements with a second employee.
More significantly, there is no assurance that correspondence
received and confirmed on one day will not be lost the following
week.
It is not uncommon for contracts to be lost. Often,
negotiators assigned to a file are reassigned before the file is
completed.
Many mortgage service companies presently operate in a state
of management and operational dysfunction.
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