Proactive Risk Mitigation in Default Servicing

MBA NewsLink recently interviewed Toby Wells, president of Cornerstone Servicing, Englewood, Colo. a residential loan subservicer and division of Cornerstone Capital Bank, SSB. Wells has nearly 30 years of experience spanning mortgage servicing, originations, capital markets and asset management.

MBA NewsLink: What strategies can lenders and servicers deploy to effectively mitigate default risk, particularly in today’s uncertain economic environment?

Toby Wells: In today’s market, proactive default risk mitigation hinges on the right technology. A strong servicing platform supports every step, from risk monitoring to effective outreach, loss mitigation and claims management. A centralized platform that integrates key default servicing functions—like loss mitigation, foreclosure and claims—improves data accuracy and ensures faster, compliant decisioning.

For lenders who partner with a subservicer, the servicer’s technology platform also directly impacts the lender’s ability to monitor risk, performance, and recapture opportunities on performing loans.

Of course, technology alone isn’t enough. Building trust with homeowners from day one is essential. When a servicer is easily accessible, responsive and supportive, they’re more likely to reach out early if they hit a rough patch. Coupling clear, consistent and actionable communication with simple tools to stay on top of payments helps prevent short-term issues and artificial delinquencies from snowballing into defaults.

Combining reliable support with smart technology and timely engagement is what truly drives results.

MBA NewsLink: With borrower hardships on the rise, what are some innovative ways to identify and address potential defaults ahead of time in order to minimize financial losses for lenders and investors?

Toby Wells: Predictive analytics is one of the most effective tools to forecast default risk and create early intervention strategies. Monitoring key data points—like payment history, credit score, debt-to-income ratio, and even changes in property tax or insurance costs—can help servicers identify patterns that signal hardship. Advanced machine learning takes it further by analyzing behavior in real time and adjusting as new data comes in, improving accuracy over time. This level of analysis deepens a servicer’s understanding of the ever-evolving challenges homeowners face so they can continuously offer relevant information and solutions.

Many homeowners facing hardship hesitate to reach out to their servicer for help, and waiting only makes matters worse. When loans fall delinquent, offering the option to apply for mortgage assistance online can help engage homeowners sooner—especially for those who can’t call during business hours or are nervous to discuss late payments.

At Cornerstone, for instance, a module in our homeowner portal walks borrowers through the process step by step. They can upload required documents directly into our system, which can shorten the entire process. At any time, homeowners can see the current status and what comes next. It’s a better experience. In fact, 67% of the applications we received last month were completed online. The abandonment rate is negligible—less than 0.04% in the past six months.

Paired with timely email updates alongside regulatory-required letters, this approach keeps homeowners informed, reduces resolution timelines, and as a result minimizes financial losses for investors.

MBA NewsLink: With default requirements and guidelines growing increasingly complex, what steps can mortgage servicers take to ensure compliance while also balancing the need for efficient default resolutions?

Toby Wells: As default requirements become more complex, compliance has to be built into every part of the servicing operation.

Timely, compliant resolutions start with the right systems. Modern, integrated technology is essential for ensuring data accuracy, streamlining processes like outreach and document management, tracking loan status and default timelines, and beyond. A strong loss mitigation system with pre-programmed waterfalls helps servicers stay compliant while efficiently helping homeowners into the option best suited for their unique situation and loan.

Equally important is clear, consistent communication—both from team members and through automated system notifications. Homeowners need to understand what’s required to qualify for assistance programs, and what could happen if they fall off track. That clarity is key to helping families avoid foreclosure and stay in their homes.

MBA NewsLink: How are data analytics and prediction models being leveraged within default servicing operations to enhance risk assessment, optimize loss mitigation strategies, and better forecast portfolio performance?

Toby Wells: Data analytics and prediction models are reshaping how servicers manage risk and support homeowners. By spotting early warning signs like changes in escrow expenses, payment behavior or credit trends, these models help servicers proactively offer resources before a default occurs.

Beyond loan-level insights, these tools help forecast impacts of broader trends. Analyzing factors like regional unemployment, home values, and other rising costs helps servicers better anticipate portfolio risk. Models can also simulate how unexpected events like natural disasters might impact performance.

Being able to predict potential impacts of a hurricane on at-risk populations helps us quickly adjust contact center staffing levels to prepare for a spike in inquiries about forbearance, for example. Our goal is to scale support efficiently and stay responsive when homeowners need us most.

MBA NewsLink: Given the increasing scrutiny on borrower communication practices and the importance of maintaining positive borrower experiences, how can servicers enhance transparency, communication, and borrower support throughout the default resolution process?

Toby Wells: It’s all about being a trustworthy partner and empowering smart homeownership. Keeping borrowers well informed and supported makes all the difference, and it needs to start well before a late payment. For example, rising property tax and insurance expenses are top causes of payment shock and default today. Monitoring escrow activity and alerting homeowners to big changes—like a spike in their tax or insurance bill—when they happen can help them to plan for a related increase in their mortgage payment. In addition, offering ancillary services geared to help reduce these expenses, such as tax appeals and home insurance solutions, can further improve home affordability and reduce default risk.

The same communication principles apply throughout the default resolution process. Engagement and resolution rates increase when servicers keep homeowners informed with timely notifications and offer options like an online mortgage assistance application when a payment is missed. Education plays a key role too: easily accessible resources like FAQs and videos empower homeowners to make informed decisions and stay engaged.

For many lenders and servicers, partnering with an experienced subservicer can be a smart strategy, especially when default volumes rise or regulatory complexity increases. A strong subservicer brings the right people, technology, and scale to manage risk and protect the borrower experience.

Above all, staying proactive is key to navigating the challenges that lie ahead. When servicers lead with clarity and compassion, even the hardest moments can become opportunities to strengthen relationships—and financial performance.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)