Q&A with Mark Damon of SWBC on Evolution of Mortgage Collections

MBA NewsLink recently posed questions to Mark Damon, senior vice president of AutoPilot services with SWBC, San Antonio, Texas, a provider of risk management products, insurance, mortgage and investment services to financial institutions, businesses and individuals. For more information, visit https://www.swbc.com/.

MBA NEWSLINK: How have mortgage collections services evolved over the years? What was done prior to the Great Recession and what was done immediately following it?

MARK DAMON, SWBC: At the heart of mortgage collections is debt. People used to consider paying off their mortgage as the top priority when managing their debt. However, credit cards are increasingly being thought of as the new top priority and because of this, over-purchased consumers are more willing to walk away from their house now than they were in previous years. As the priorities of the customer change, the mortgage collections industry is forced to evolve.

Shifting consumer perspectives are complemented by increasing changes in regulation. Since the Great Recession, the federal government has passed regulations that make mortgage processes even more convoluted. Regulations passed by the Consumer Financial Protection Bureau have only increased the service time for mortgage collections. Servicers are more frequently held up in court and foreclosures take much longer than they once did.

The CFPB is also more diligently managing mortgage collections practices. Government-sponsored enterprise lenders must adhere to more stringent rules and contact the borrower every three days. In addition, the GSE lender is required to ask the borrower detailed questions regarding their status and intention to remain in the property. The lender must also provide reporting on the activity of the portfolio, such as Quality Right Party Contacts, HARPs (Home Affordable Refinance Program) and HAMPs (Home Affordable Modification Program) requested and other portfolio activity. Upon the request of the HARP or HAMP, the lender must now provide a single point of contact. The rules surrounding mortgage collections have shifted away from lender protection in favor of consumer protection. While this has its benefits, it creates great difficulty for lenders trying to manage their own collections and costs.

NEWSLINK: How has the role of technology changed in the collections process as a result of the Great Recession?

DAMON: In the past, mortgage collections involved hiring a large staff to make calls and collect on mortgages. Since the Great Recession, functionality and processes have improved due to better utilization of technology and software. Automated call systems and voice recognition software are able to efficiently sustain collections rates.

Both the auto-dialers and collections software have the ability to aggregate information and leave an audit trail. They can update information on any mortgage collections case including who to call, where that person works and what course of action should be taken. The enhanced ability to manage information through technology saves countless hours of manpower.

However, even with the advancements in technology, humans can always play a role in the mortgage collections field. Mortgage collections are different from other collections processes because the “door knock” can never be automated. While other pieces of collateral can be moved and even hidden, a house is a much less mobile form of property.

NEWSLINK: With real estate finance industry data suggesting that we are moving toward pre-recession norms, are mortgage collections also returning to normal levels?

DAMON: Mortgage collections portfolios are returning to levels seen before the recession. During the recession, the number of non-performing collections portfolios, in which the borrower is not in the house or not making payments, increased sharply with the number of defaults. Today, the number of performing collections portfolios is similar to pre-recession levels. This means that more people are remaining in their homes and lenders are receiving payments.

The return to prerecession levels of mortgage collections has occurred even though mortgage and collections processes have been completely restructured. Federal regulators are enforcing tighter regulations to prevent another recession. They have been auditing larger firms more intensely and requesting more credentials when financing. It costs much more for lenders to meet these regulations, but through leveraging technology, collections companies are able to meet the requirements and remain effective.

NEWSLINK: What risks are associated with relying on manual processes for collections and how can a financial institution make sure the collections process is modern enough to stay competitive?

DAMON: Relying on manual processes is always risky. By utilizing technology, lenders ensure that collections calls are completed in a timely manner and that the right questions are being asked. When a human is making calculations and assigned with multiple tasks at once, mistakes happen. This increases the liability risk of a lender.

The biggest expense that financial institutions have is their employees; so, the more the bank can use auto-dialers and collections software, the more cost-efficient the collections process becomes. Financial institutions should consider leveraging a third party to stay competitive. A third party focused on investing in collections technology can far exceed any solution created within a financial institution. By not over extending resources, financial institutions can focus on properly allocating existing capital to expand other operations, such as mortgage origination.

NEWSLINK: The Federal Communications Commission recently modified the Telephone Consumer Protection Act (TCPA) in such a way that many believe places mortgage lenders and servicers at risk when making collection calls. What advice would you give to companies that engage in these practices?

DAMON: The element of needing consent to call cellphones is the strongest component of the TCPA. A gray area exists when borrowers choose to list their cellphone number as the primary contact number. Companies must ensure that when a borrower signs their initial agreement, they include a clause acknowledging consent that their provided cellphone number can be dialed in order to collect a debt. The lender should also ask the borrower to identify if their cellphone is their primary contact number. These steps go a long way in ensuring that collections practices are up to the standards of the TCPA and CFPB regulations.

However, there are not as many infractions related to collections calls. The primary way financial institutions and lenders get into trouble is when they are making a marketing call. Some organizations attempt to combine a collections call and marketing call into one. The lender calls to collect the loan and ends the call by trying to sell the borrower on a new credit card. Lenders should not engage in this type of practice. As long as lenders separate mortgage collections practices from other areas of their business, they can significantly reduce any risk of not being in compliance with the TCPA.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions; articles and/or Q/A inquiries should be sent to Mike Sorohan, editor, at msorohan@mba.org.)