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Clearing Loss Mitigation Processing Hurdles In
Unprecedented Market Conditions

Current volatile housing and economic conditions are driving
servicers to navigate previously uncharted territory. As increasing
numbers of borrowers find it difficult to make their mortgage
payments, the need for effective loss mitigation solutions is now
more urgent than ever. Servicers must quickly deploy efforts to
avoid foreclosures and avert the high costs of maintaining and
disposing of REO properties.

The current volume of loss mitigation activity is expected to
keep escalating as a result of the government-sponsored Home
Affordable Modification Program (HMP) announced by President Barack
Obama on February 19 this year. The HMP program is designed to help
stabilize the U.S. housing market and, as a result, the economy as a
whole. The two-pronged effort aids at-risk homeowners who are in
danger of losing their homes to foreclosure. As a result of the
program, servicers are expected to process as many as 4-5 million
refinances and 3-4 million loan modifications between now and the
program’s expiration in December 2012.

The new HMP program and the level of processing volume it will
generate present a serious challenge to servicers, whose servicing
platforms are neither equipped to handle the volume nor the
complexity of processing these loans. Although many servicing
systems were designed with some loss mitigation functionality, no
one could have forecast the current housing crisis, the government’s
decision to intervene and the processing requirements that have
emerged as a result. Modifying existing technology to meet the
urgent need for complex, high-volume loss mitigation processing
isn’t feasible, while wrap applications and spreadsheets are
cumbersome and inefficient solutions.

Fortunately, there is an alternative to manual processing and
tracking. Since President Obama announced the HMP program, LPS has
been working tirelessly to incorporate HMP processing requirements
into LPS Desktop’s™ Loss Mitigation application. On June 5, LPS
released HMP functionality into production, and LPS Desktop Loss
Mitigation now fully supports both Home Affordable Refinances and
Home Affordable Loan Modifications.

The LPS Desktop Loss Mitigation application delivers a wealth of
benefits to servicers facing a high volume of loss mitigation
activity. The power behind the application is its comprehensive
rules engine, which automates the entire loss mitigation process.
Rules-based automation saves time and money by helping servicers
route and process files much more quickly than manual processing.
This reduces backlogs and allows servicers to contact at-risk
borrowers sooner, which should result in reduced foreclosures and
associated expenses.

The application’s rules engine also incorporates
client-configured approval parameters and hierarchies to push
completed files through the proper approval channels and drive them
back to the home retention specialist, who can generate documents
through the system, and have them executed online or via mail.

The process begins with client-configured assignment rules that
direct files to a specific person or workgroup. The engine
automatically places those files in work queues for ready access.
Files can be assigned by investor, loss stage, terminal digit and
other parameters.

The application includes net-present-value (NPV)-based
decisioning tools, which use present value and future cash flow to
determine the best loan workout solution for the borrower. The
system can handle any loan modification/workout solution currently
at use within the market, including HMP refinances and
modifications. The NPV-based decisioning tool is critical to
improving a servicer’s loss mitigation results, as it helps home
retention specialists make better decisions on larger populations of
loans.

LPS Desktop Loss Mitigation also handles batch modifications.
Servicers can use analytic tools to isolate loans that require loss
mitigation and send them in a loan file with loan-specific
modification instructions, such as extending the rate change date,
extending the loan term, capitalizing delinquencies or reducing the
interest rate. Hundreds or even thousands of files can be processed
overnight.

Servicers need to act quickly to protect their assets. Swift
implementation of loss mitigation capabilities for at-risk borrowers
will be critical to servicers as the next round of ARM resets in
2010 is expected to start a new wave of delinquencies. Automating
the loss mitigation process to handle delinquent and at-risk loans
more quickly and effectively will be the key to avoiding
foreclosures, reducing costs and stabilizing the market.

For more information regarding LPS Desktop, click here or contact Pam Beck-Janssen at
651-234-3698 or via email at mailto:[email-masked]

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