The day is coming when lenders will no longer turn their clients loose after they leave the closing table, never to be heard from again unless someone misses a payment or two.
Think of it as crisis intervention. Rather than waiting for previously solid borrowers to ask for help, lenders will monitor their borrowers over the life of their loans, looking for signs of trouble before borrowers even realize a problem is at hand. It won’t happen this year, or even next. Lenders are too busy right now cleaning up the current mess of bad loans. But Sanjeev Dahiwadkar, president and chief executive of IndiSoft, a Columbia, Md., mortgage-technology company, believes it won’t be too long before lenders begin keeping tabs on their customers for as long as their loans are on the books.
"That ship has already started sailing," Dahiwadkar says. "Historically, servicers have always waited for problems to materialize before trying to do something about them. But they are going to be watching their portfolios much more closely in the future." IndiSoft writes computer programs for the default-management business, the underbelly of the lending community that works to turn nonperforming loans into performing assets. The company’s clients include everyone who has a stake in saving problem loans: the investor that purchases the loan from the funding lender, the servicer that collects the payments on behalf of the investor and the insurance company that promises to cover part of the investor’s losses should the borrower stop paying.
Currently, IndiSoft’s technology comes into play the day a borrower stops paying. But Dahiwadkarsays the company is working on programs that monitor borrower behavior so that if a life-changing event such as a divorce or layoff occurs, an IndiSoft client can take whatever steps are necessary to make sure the borrower continues to make timely payments as promised.
The client might choose to simply monitor a particular loan more closely than it would otherwise, perhaps sending a friendly reminder a few days after a payment is due rather than waiting until it is 30 or 60 days late. Or it could take bolder steps such as calling the borrower to make sure that all is well and offering help right away instead of when the borrower is 90 days behind.
Right now servicers are so overwhelmed trying to work through the millions of mortgages that are in some stage of the foreclosure process that slow-paying or minimally late-paying loans are getting little or no attention. Worse, most borrowers tend to stick their heads in the sand when they get behind, figuring that they’ll solve their problems on their own. But even when borrowers call in an attempt to avert a potential crisis, short-handed servicers typically relegate them to the end of the line because they have their hands full with more extreme situations.
Eventually, though, the foreclosure mess will clear. And when that happens, Dahiwadkar believes that stakeholders will become far more proactive in managing risk than they are now. Instead of reacting to problems as they occur, he says, they will look for a pattern of behavior — clues, if you will — that indicate a problem is on the horizon. This goes far beyond the latest underwriting wrinkle of reevaluating a would-be borrower’s credit just before the mortgage closes to make sure that the person hasn’t taken out any other loans or run up other bills that would impinge on the ability to make house payments. And it could go way beyond monitoring for life events such as a major medical issue.
For example, the lender might ask you to sign a document at settlement that gives the servicer the right to run periodic credit reports to see whether you are having any difficulty paying your bills. If the servicer knows you’ve missed a couple of credit card payments or you are late on your auto loan, it might call to find out what’s up. But permission to monitor your credit goes even deeper than that. If all of a sudden you start paying your bills on the 15th of the month instead of the first, for example, programs developed by IndiSoft or other technology companies will alert the servicer, which can then step up its surveillance.
"There are different ways to analyze risk," Dahiwadkar says. "A change in behavior is something to be cautious about. So if a payment pattern changes, it could be a trigger for putting a loan on a ‘watch’ list." Then, if you don’t seem to be handling your finances well, the company might offer credit counseling so you don’t also fall behind on your mortgage. Or if you’ve been laid off, the servicer could offer to rework your loan or allow you to miss a few payments until you get back on your feet.
But Dahiwadkar says servicers and other stakeholders will be watching their borrowers’ behavior much more closely so they also can separate those who are truly experiencing financial difficulties from deadbeats simply refusing to pay.
If someone stops paying the mortgage but continues to make credit card payments on time or takes on new debt — a second mortgage, for example, a car loan or a loan from a finance company — the IndiSoft executive says, "It’s pretty certain you are dealing with a borrower who is not paying because he doesn’t want to, not because he can’t."
Source: The Los Angeles Times, Lew Sichelman