Irma More Likely to Impact Mortgage Defaults Than Harvey
Hurricane Irma, which struck Florida in early September, is more likely to result in a wave of early stage delinquencies and defaults than Hurricane Harvey, which hit the Houston area in late August, recent research from Black Knight shows.
That’s because homeowners in the Houston area generally have more equity in their homes compared to homeowners in Florida. As a result, homeowners in the Houston area are less likely to “walk away” from their homes.
According to Black Knight’s Mortgage Monitor report, most borrowers impacted by Hurricane Harvey have “significant equity” in their homes.
However, about 350,000 properties in Florida impacted by Irma have negative or near-negative equity. In other words, in Florida there are significantly more properties that are “underwater” in terms of loan-to-value.
The report shows that 5.3% of borrowers in Hurricane Irma-impacted counties still owe more than their home is worth, with another 5.6% having less than 10% equity.
But in the Houston area, fewer than 0.5% of Hurricane Harvey-impacted borrowers were in negative equity positions – way below the national average of 2.8% – and fewer than 4% had less than 10% equity.
The average combined loan-to-value ratio for homeowners with mortgages in Hurricane Harvey-related disaster areas is 53%, according to the report, with each borrower holding an average of approximately $131,000 in equity.
Ben Graboske, executive vice president for Black Knight Data and Analytics, says that 53% is “a lot of skin in the game and will likely serve as strong motivation for borrowers not to walk away from a storm-damaged home.”
“In addition, over 75 percent of mortgages in the Hurricane Harvey footprint are held in Fannie Mae, Freddie Mac or Ginnie Mae securities,” Graboske says in the report. “Therefore, the bulk of borrowers affected by the storm will be able to find assistance under the various foreclosure moratoriums and forbearance programs that have been instituted.
“While we have already seen an early spike in delinquencies in Hurricane Harvey-impacted disaster areas, with many more likely to follow in September’s data, the combination of available assistance and healthy equity stakes on the part of borrowers are both very positive signs for the long term,” Graboske adds.
One reason why Irma might have a greater impact on delinquencies and defaults compared with Harvey is because it affected most of the state of Florida and, thus far, more homes.
“The 48 FEMA-declared Hurricane Irma disaster areas include over 90 percent of the state’s mortgaged properties,” Graboske says. “To put this in perspective, that means that by balance, over five percent of all mortgages in the U.S. are included in Hurricane Irma’s disaster areas. Unlike Houston, though, where all-time-high home prices have contributed to a significant reduction in negative equity, home prices in Florida remain 17 percent below their 2006 peak. On average, borrowers in Hurricane Irma-related disaster areas have a combined loan-to-value of 57 percent, somewhat higher than the national average. Of the 3.2 million borrowers impacted by Irma, an estimated 170,000 were still in negative equity positions before the storm, with another 180,000 having less than 10 percent equity in their homes. Due to lackluster home price recovery since the housing crisis, the negative equity rate in Irma’s disaster area is nearly twice the national average.”
Between the two hurricanes, 4.4 million borrowers representing $705 billion in unpaid principal balance were affected, the report states. By volume, the government-sponsored enterprises and Ginnie Mae have the most exposure (3.2 million loans, $466 billion in UPB), but in terms of share of total portfolio exposed, private-label securities (PLS) are most impacted. Nearly one out of every 10 loans remaining in a PLS was impacted by one or the other of the storms.
Not only are 8.3% of all of outstanding PLS loans connected to properties within Hurricane Irma-related disaster areas, but over 17 percent of those same borrowers remain in a negative equity position with an additional eight percent having less than 10 percent equity, according to the report.
All in, as many as one in four PLS loans in Hurricane Irma’s path had limited equity available, prior to any potential home price impact due to storm damage.
DIMONT Launches New Claims Guidance Service
DIMONT, a provider of insurance claims adjusting and collateral loss mitigation services to the residential mortgage industry, has launched a new complimentary claims consulting service to provide claims management guidance to lenders and servicers in the aftermath of hurricanes Harvey and Irma.
The new DIMONT Associates Nationwide Adjusters (DANA) service is a virtual resource center that will allow lenders and services the ability to email questions or schedule a live chat with a licensed adjuster.
The tool is available indefinitely to mortgage and auto lenders and servicers, and is not limited to DIMONT clients.
As part of this free service, DIMONT’s adjusters will, at a minimum, help servicers evaluate whether properties are in flood zones, what types of coverages apply and, most critically, how to navigate the exclusions, endorsements and exceptions in the applicable policy.
“People often assume that coverage automatically applies, but that is not the case,” says Denis Brosnan, CEO of DIMONT, in a release. “The terms and conditions of policies vary greatly by the carrier and, as such must be carefully scrutinized.
“We wanted to provide the auto and mortgage industries a simple resource to get their questions answered on filing claims, addressing refuted claims, claim type, customer service – basically anything they need,” Brosnan continues. “DANA offers a complimentary phone consultation with our expert licensed public adjusters, who can help navigate claims processing during this uncertain time.”
The company says it will continue to offer this free service beyond Irma and Harvey.
Servicers can go to dimont.com/dana to schedule a call with an adjuster.
What Makes Document Management ‘Smart’?
Most mortgage servicers use a “dumb” repository for document management. Why is it dumb? Because it’s just a repository used to search, retrieve and perhaps annotate files. This is what you will commonly find in a loan origination system.
“Smart” document management offers a way for servicers to minimize compliance risk as well as to streamline operations, boost productivity and achieve a competitive advantage.
We’re only referring to document management as “dumb” because something more powerful has replaced it – it had to be dumb before it could be smart.
Even the earliest and most basic form of document management software got servicers away from storing paper in file cabinets and offsite storage, and storing electronic documents in shared drives or SharePoint repositories – and this was an evolutionary step in how loan information is captured and processed.
So, what makes document management smart? Here are five things:
1. Dynamic document capture
2. Streamlining operations with workflow automation
3. Automated retention scheduling: static and dynamic
4. Auditor/third-party self-service
5. Data integrity review
Dynamic document capture
Many in the enterprise content management industry have been promoting the idea of “scan-to-workflow” for years. The idea is that, instead of manually processing paper files and then scanning them for later search and retrieval in document management software, that you instead scan them into document management software and use its workflow module to initiate and streamline processing.
For paper documents coming in, dynamic document capture can involve a combination of advanced optical character recognition with human experts for document classification and data extraction both trained on the same classification taxonomy, paired with automated routing based on document type, which represents the initiation of workflow for each document.
Streamlining operations with workflow automation
Once this information is captured electronically, it is routed to the right staff member for processing, to the right manager for approval, to the right people to resolve any problems, and for documents to be stored in the right repository with the right retention scheduling applied.
Here are three useful applications:
Loss mitigation and processing QWRs: Workflow automation streamlines the loss mitigation process for handling qualified written requests (QWRs). After receipt, whether email or paper that is scanned, they are classified by type and ingested into the workflow. The present of a new QWR atomically starts a workflow tracks the time from receipt to response, escalations the response if not completed in a set time, and connects with the servicing platform to automatically open a response letter. This helps ensure that QWR receipt is confirmed within the required five days and processed promptly. It saves the servicer time and reduces their risk through workflow automation.
Back office: Once an investment in document management and workflow automation has been made, it can be leveraged to streamline AP, HR and legal documents to produce major productivity gains for an incremental cost. Workflow automation has often reduced the time needed for invoice processing, new employee onboarding and compliance education tracking by 75% to 90%.
Audit trails: Simply put, every touch of a document by your staff or a process within the system is logged and becomes part of that document’s audit trail.
Automated retention scheduling: static and dynamic
To minimize risk of lawsuits relating to how long you are legally required to retain documents, it’s imperative to have a records retention capability within your document management software that you can count on. Retention scheduling needs to ensure that documents are destroyed when legally allowed and not beforehand.
Manually managing retention scheduling is the fast track to errors and non-compliance – it’s just too much for any one person to remember, and what happens if that person is not available when needed?
Automated retention scheduling ensures compliance without relying a manual process centered on an individual.
There are two types of automated retention scheduling:
- Static document retention: automatically purges documents once their retention timeline has expired; this can be very dangerous and can lead to unintended deletions.
- Dynamic records management: automatically alerts your staff when a document’s retention timeline has expired so they can review it prior to being purged; this represents a double-check to ensure the right retention schedule has been applied to the document
Because servicers and subservicers get audited frequently, being able to provide electronic document access to auditors streamlines the audit, making it a lot less painful. Instead of sending DVDs or thumb drives, potentially unsecure email or other delivery methods, smart document management allows for auditors to be set up with their own login, password and right degree of access.
Other third parties, such as a subservicers’ clients, are provided access in the same way, accessing only their borrowers’ documents and performing only the functions they are allowed.
By using cloud document management software, they can access your system anywhere with an internet connection without needing VPN access.
Data integrity review
Workflow automation can help you minimize risk as part of the due diligence process by putting the portfolio through a data integrity review.
How it works:
1. All documents are ingested, and multi-document files are split into individual documents.
2. Each document is classified by document type – some servicers have up to 1,500 document types.
3. The appropriate data is extracted by the rules of each document type.
4. The documents are compared with a list of required documents for that loan type to determine what is missing with the option of being kicked back to the seller to address.
5. The document data is automatically compared to the seller servicing data so that discrepancies can be identified and remediated and the correct data is boarded onto your servicing platform.
Missing documents and data can also be identified from your portfolio when you sell loans to Fannie Mae and Freddie Mac to eliminate re-submittals and rejects. Since the average mortgage is $214,000, being able to eliminate a few rejects for every sale can quickly add up to millions, which can be a big hit to your warehouse line and overall profitability.
By taking advantage of smart document management, your staff will be able to process more documents in a fraction of the time, allowing you to onboard more quality loans, eliminate buy-backs, and provide a higher quality of service to borrowers – all of which increases profitability, customer satisfaction and competitor envy. – Russell Thomas
Russell Thomas is senior director of business development for MetaSource LLC, a company focused on providing technology-enhanced back-office business process outsourcing services and content management solutions for the mortgage industry.
RES.NET Launches New Portal for Complicated Servicing Functions
RES.NET has debuted the PropertyCure Data Portal, a new component in its suite of solutions for mortgage servicers that addresses the operational challenges associated with managing files for both investors and GSEs.
The solution enables servicers to track a property preservation company’s progress, servicing errors, violations, utilities, bids and property registration, as well as additional processes such as hazard insurance claims and inspections. Servicers can manage each of their preservation vendors in one centralized place by using workflow tools that can be configured on a per portfolio basis. Additionally, direct vendor systems integrations with RES.NET allow servicers to access vendor updates directly within PropertyCure, eliminating the need to access multiple vendor sites.
“We recognized that the specialized areas of servicing were having to rely on legacy or centralized platforms, and their needs weren’t being met, forcing them to be reliant upon cumbersome, highly manual processes that often resulted in costly errors,” says Keith Guenther, CEO and co-founder of RES.NET, a subsidiary of USRES. “We sought out to develop a solution that would be relevant, fill this void and round out our suite of servicer solutions to address all types of loan servicing challenges.”
RES.NET provides a variety of specialized technology portals designed for various aspects of the real estate industry. Each portal integrates mortgage banking companies, real estate brokers, asset management providers, third-party service providers, homeowners and buyers, enabling each to access a single platform.
Cenlar Names Rob Lux EVP and CIO
Cenlar FSB, a savings bank that specializes in mortgage subservicing, has appointed Rob Lux to the position of executive vice president and chief information officer.
Lux will assume responsibility for providing overall technology strategy and oversight of Cenlar’s information systems to all areas of the company with regard to new and existing technology.
Before joining Cenlar, he worked at Freddie Mac as an EVP and CIO, where he managed all IT systems, performed IT legacy remediation, and performed regulatory oversight that improved business performance and reduced operational costs.
“Rob’s appointment reflects his impressive work history spanning over 30 years in the financial industry and wide-ranging technology experience in providing focused and timely project delivery and operational capabilities,” says Gregory S. Tornquist, president and CEO of Cenlar FSB.
LERETA Debuts Virtual Tax Service Training for Servicers
National real estate tax and flood service provider LERETA has created LERETA University, a web-based training platform to support and assist servicers in navigating in-depth tax servicing information.
LERETA University is virtually led by instructors who assist servicers and their staff in real-estate-specific tax servicing. Accessed through LERETAnet, the company’s existing hub and customer information portal, the LERETA University platform serves as an extension of on-site training and is focused on helping companies avoid risks that are caused by common mistakes and oversights. Inaccuracies in real estate tax servicing have the potential of costing servicers in penalties, interest and property loss not to mention having a negative effect on borrowers.
“Training is particularly critical for staff in these roles due to the function’s inherent risk,” says Jonnine Eras, vice president of client relations at LERETA. “Tax servicing is an intricate and specialized function that requires employees to have thorough and specific knowledge. LERETA is in a position to share our resources to better equip our customers and their staff with knowledge, understanding and skill that can protect them against possible risk.”
LERETA provides a full suite of national real estate tax services for residential and commercial loans, including automated online research and certification, tax bill processing, a suite of delinquent tax services and customized tax outsourcing service programs. In addition, LERETA provides real-time flood zone determination services that include flexible levels of service based on customers’ needs.