Nexval’s Souren Sarkar: Why to Transform Engagements With Distressed Borrowers, and How

Souren Sarkar, CMB, is the president and co-founder of Nexval, a technology company specializing in mortgage automation processes and IT infrastructure upgrades, located in Miami, Fla. Sarkar has over 25 years of experience as a technology leader in the mortgage and banking arena and is an expert at improving the performance and scalability of service-driven businesses using workflow automation. He can be reached at

Effective customer engagement is the linchpin to any mortgage company’s success, but it’s absolutely critical when working with borrowers who are having trouble making payments. In fact, a sound communications strategy is not just a strategic loss mitigation tool and a pivotal regulatory requirement—it’s both essential for reducing risk for both lenders and borrowers and shaping your market reputation.

Customer engagements are growing more important, too. In fact, the U.S. Department of Housing and Urban Development just came out with a new servicing rule that gives lenders a compelling need to improve their communication and engagement strategies with defaulted borrowers. But beyond new regulatory hurdles, upgrading borrower communications represents a golden opportunity for lenders to harness new business channels and technologies that can make their entire operations run more efficiently.

Understanding the Need

Until recently, mortgage providers have been bound by a 1976 regulation that mandated face-to-face meetings with defaulted borrowers. This was back when the mortgage sector was very decentralized, with most borrower interactions happening within the local markets.

However, a nationwide housing boom and the advent of new technologies in the 1990s prompted lenders to consolidate their origination and servicing operations. As a result, larger gaps were created between lenders and consumers, even though the outdated guidelines for in-person interactions still applied.

While the goal of default servicing is to reduce losses, the expenses and difficulties associated with in-person interactions can be overwhelming—so much so that they frequently overshadow the gains made by loss mitigation initiatives.

According to recent data from the Mortgage Bankers Association, it cost one lender $3.9 million to comply with the face-to-face interview requirements during a single year. Such expenses did little to improve the ability of lenders to collect proper loss mitigation documents from distressed borrowers. For instance, another lender reported sending out 50,000 meeting requests to distressed FHA borrowers and receiving an acceptance rate of just 0.028%.

In July, HUD announced a proposed rule that permits “electronic and other remote communication methods” to contact a distressed borrower. Basically, the agency is looking to make permanent the waivers to the in-person requirement that were granted during the COVID-19 pandemic, when social distancing protocols were in place. The objective is to communicate with consumers in ways that are most likely to generate a response, which is key to creating the best outcomes.

Notably, the new HUD proposal emphasizes the use of innovative communication forms like video conferencing as effective ways to engage with default borrowers. This makes sense, given that video communication, smartphones and tablets were non-existent back when the old restrictions were written.

How to Get Started

Due to the pandemic, the need for more interactive communications to successfully engage distressed borrowers has already become fairly apparent. And thankfully, lenders now have far more options to consider when engaging distressed borrowers, from social media to email, live chat and video—as well as the ability to leverage any combination of these methods. The question is how.

While the traditional means of engaging borrowers was overwhelmingly laborious and time-consuming, abandoning these practices for a more modern approach takes considerable planning. But there are several key ingredients in the recipe for success.

First, most lenders that have not already done so will need to invest in modernizing their mortgage CRM so they can better manage and track all borrower communications. Whatever CRM solution is used, it should be closely integrated with the lender’s servicing platform so that all data updates, inquiries and documents sent to a client are incorporated in all the servicer’s communications with a particular borrower. The solution should also be flexible enough to incorporate new communication methods as well as new industry data standards as they are developed.

Second, lenders should leverage document automation to better manage records such as letters and notices, loss mitigation applications, and call and video transcripts. While the benefit of modernizing borrower interactions is less reliance on traditional paperwork, lenders still need automated tools that can read and process data in various formats and identify and reconcile incomplete documents and other issues. Because such capabilities are beyond the scope of legacy servicing technologies, lenders may need to look for cutting-edge solutions provided by a trusted third party.

Lastly, lenders will need to train their customer service representatives as well as their management teams and other staff on properly leveraging new communication channels in an efficient and compliant manner. While digital communications open up the door to faster borrower outreach—and hopefully, faster and better response rates— switching from a slow, asynchronous communications model to real-time borrower exchanges requires a shift in mindset. Because the training requirements of every lender will be different, this is another area where third-party expertise can come in handy.  

Embracing the New Reality

As the HUD accurately points out, COVID-19 triggered a new phase of innovation when it comes to borrower engagement. Indeed, remote assistance for distressed borrowers is becoming the norm rather than the exception—but that doesn’t mean every lender is doing it correctly or truly making maximum use out of today’s technologies. If lenders modernize communication for only certain borrowers, such as digitally savvy ones, they won’t fully realize the benefits.

By waiving in-person meeting requirement permanently, HUD has effectively given lenders a chance to finally update their default servicing communication systems to meet the demands of today’s consumers. To finish the job, lenders will need tighter integrations between their CRMs and servicing platforms. Application programming interfaces (APIs) will be needed for the integrations themselves, but lenders will also need data standardization and stronger system security to safeguard channel-to-channel communications.

While all this may seem like a heavy lift, there are experts who can help. But the bottom line is that lenders shouldn’t wait to take advantage of this window of opportunity. Given the unstable state of the economy, growing rates of inflation, and a sluggish housing market, the industry could very soon be facing an increase in foreclosures. For most organizations, the only way to reduce losses and avoid the added costs associated with collecting bad debt is develop stronger default communications—while they have the time and resources to do so.

(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 your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)