Customer Engagement Technology Key to the Future of Mortgage Servicing

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1 Customer Engagement Technology Key to the Future of Mortgage Servicing February 2016 The mortgage servicing space continues to undergo fundamental change and remains the focus of regulatory attention. The key to bringing the servicing model through this time of fluctuation and securing a stable long-term business strategy, is investing in thoughtful customer engagement aided by technology. Early and informed communication with the borrower is critical to servicer success throughout the mortgage lifecycle. Regulation has forced servicers to focus on atrisk borrowers. This has left the majority of borrowers without effective means for communicating with their loan servicer from the time they receive their new borrower letter through payoff. These are the borrowers that will contribute to the long-term success of the servicing institution. Now more than ever, servicers need to understand borrower engagement in terms of regulatory scrutiny, as well as leverage borrower data and communications, by creating a business model that engages the borrower in all aspects of servicing interaction. There is increasing emphasis on borrower engagement in the servicing space, with measures of servicer success and reputation becoming more focused on the borrower experience. This has compelled servicers to increase efforts to effectively communicate with borrowers with already restricted resources. From investor scorecard criteria to agency oversight, and industry surveys, such as the JD Powers Customer Satisfaction Survey, servicers are under pressure to ensure borrower satisfaction. Mortgage investors are focusing improved borrower engagement and have incorporated borrower satisfaction as a component of servicer scorecards. Fannie Mae s Servicer Total Achievement and Rewards (STAR), Freddie Mac s Servicing Success Program and the Department of Housing and Urban Development s (HUD) National Servicing Center s Tier Ranking System (TRS) II all include criteria in this area. Regulatory Drivers The primary industry proponent for borrower engagement and consumer protection is the Consumer Financial Protection Bureau (CFPB). During remarks made last year on the fourth anniversary of the CFPB, Director Richard Cordray summated, If we can help spur competition based on consumer satisfaction, this has the potential to improve the functioning, transparency, and efficiency of the

2 financial marketplace. This is a notable statement; however, the CFPB s reach extends deep into the marketplace when it comes to oversight and enforcement, often immobilizing the industry and stalling forward-thinking initiatives to engage borrowers throughout the mortgage lifecycle. Ongoing regulation has had a significant impact on servicers and 2016 will be no different. Servicers face new regulation and continue to be subject to examination concerns raised by the CFPB. The Uniform Minimum National Standards for Consumer Mortgage Loan Servicing, originally established in 2013 as a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), is set to be amended and finalized later this year. The CFPB s completion of the 2013 mortgage rules under the Real Estate Settlement Procedures Act (RESPA) (Regulation X) and the Truth in Lending Act (TILA) (Regulation Z) reflects guidance derived from examination findings. Increased focus is expected on loss mitigation application handling and transfer of servicing management, timely responses to borrower requests for information and error complaints. The CFPB will continue to direct attention to areas of infraction. This includes non-compliance with the Fair Debt Collection Practices Act requirements for fees charged when mortgage payments are processed over the telephone and the timely issuance of debt validation letters. Violations of the Homeowners Protection Act (HPA) continue as well, whereby borrower private mortgage insurance (PMI) payments are not be cancelled at the option of the borrower as directed, with some servicers inappropriately overlaying investor guidelines. What does this mean? Continued focus on at-risk servicing, examination and enforcement actions, resulting in further diversion from borrower s that are meaningful for servicer retention and growth. Emerging Measures of Customer Satisfaction The J.D. Power U.S. Primary Mortgage Servicer Satisfaction Study is a leading indicator of borrower satisfaction with the mortgage servicing experience. The J.D. Power survey rates the largest non-bank and bank servicers on six factors: billing and payment processing; escrow account administration; mortgage fees, interaction, such as online or by phone; and, communications. The study was recently redesigned in an effort to assist servicers in improving borrower satisfaction and point out best practices that, among other things, create positive customer experiences that improve brand perceptions and minimize oversight risk. Key findings from 2015 indicate that 85 percent of borrowers that were extremely satisfied with service delivery (900+ on a scale of 1 to 1,000) will recommend the mortgage servicer. The study also indicated that 74 percent would use their servicer for the next home purchase if applicable. In addressing best practices, the study affirms that the heavy focus on at-risk borrowers is causing servicers to tie up excessive time and costly resources that would be more productive if deployed in areas such as website improvements and enhanced selfservice alternatives.

3 The Evolution of Service Delivery Across Industries Understanding the importance of customer experience is not isolated to the mortgage industry, let alone servicing. Industries across the service delivery spectrum are seeing changing dynamics as technology and social demographics rapidly evolve. In a recent white paper, entitled The Power of Personalization, Forrester Consulting identified personalization as a key component to successfully achieving a customer-centric approach to customer engagement. Increasing customer touch points are a primary obstacle, as these touch points generate vast amounts of customer data, resulting in data management and privacy concerns. Interestingly enough, firms reported that the primary means for personalizing communications was through , where typically only the customer name is changed, with mobile access and social media lagging. According to Forrester, this indicates that efforts are general and segmented, not focused on the individual as is the intent. Microsoft points out similar challenges in Strategic Considerations When Building Customer Service for the Next Decade, attributing declining service quality to rapidly expanding access channels. Business attention drawn to areas that deliver immediate returns on investment, versus all areas that touch the customer, was another contributing factor. Critical success elements for executives were reflected as centralize components that are common to all customer service interactions across channels, implement more self-service and automation technology to empower customers to help themselves, affirming the value proposition of a borrower-centric to engagement. Growing Out of the Current Servicing Model Mortgage Servicers will remain in the regulatory spotlight with the final RESPA, TILA rules set for release this year. This ongoing environment of regulator scrutiny necessitates strategic diligence to ensure borrowers have access to their loan servicer. Servicers are all too familiar with issues that arise during the borrower onboarding process, when the initial and year-end escrow analysis statements are issued, during payment and payoff processing. Many of these concerns could be readily addressed and documented with solutions that simplify borrower access to information via the web or through mobile technology. Technology and telephony for servicers has improved over time, but with budget dollars constrained by the cost of compliance and default servicing, servicing systems tend to be fragmented and outmoded. For the most part, they facilitate the collection of an abundance of data that is not organized or utilized effectively across the organization, pushing the servicer further away from achieving borrower-centric service. More importantly the servicer is exposed to closer examination, as borrowers become more likely to submit formal complaints and poorly documented communications precipitate examination issues. Deploying technical solutions to improve borrower outreach and communication can alleviate the majority of these issues and ensure compliance throughout the mortgage lifecycle.

4 Tapping into Vendor Solutions Servicers have the opportunity to leverage vendor solutions to strategically reshape business processes and service offerings that engage borrowers as a central focal point of the business model. A high touch method of engagement in today s environment requires digital technology that is user-friendly and bidirectional, producing a communication channel that is collaborative as opposed to static. Engagement management that supports self-service on demand access to the mortgage servicer is essential to evolving a borrower-focused service model. This centralized approach to the borrower experience enables servicers to simultaneously streamline operations, maximize business opportunities and ensure regulatory compliance. Servicers can migrate towards a strategic offensive position as opposed to the defensive model that arose out of the financial crisis. Implementing workflow solutions that ensure end-to-end consistency in service delivery, as well as providing the servicer with easy access to borrower events and communications throughout the loan lifecycle can greatly improve borrower engagement. New strategies for servicing workflow facilitate the realignment of personnel, redefining roles and responsibility, identifying resource needs for more production utilization of resources that focus on borrower needs. Strong loss mitigation and default administration is required by all servicers, but the path to borrower retention lies outside of this arena. Streamlining operations in a manner that reflects the importance of the borrower and delivering on a borrower-centric approach is a business differentiator. Current servicing communications are heavily scripted and impersonalized. Borrowers feel messaging is too generic and doesn t demonstrate that communications are genuine or credible. Borrower engagement aided by technology also improves the servicers ability to maximize opportunity. Bank-owned servicers have the most to gain as satisfied borrowers and increased data create cross-sell opportunities within the bank footprint, increasing borrower retention and attracting new borrowers. As servicers expand the use of technology-driven processes and adopt a borrower-centric business approach, success in engaging millennials will be a natural evolution. Millennials, defined as ages 18 to 34, represent a hot market. This demographic has already taken the lead in embracing new delivery platforms, including the internet, mobile technology and social media, driving change to an industry historically consumed in paper. Clarifire Can Help Borrower engagement is the key to unlocking future servicing business and avoid regulatory scrutiny. By redirecting business strategy to focus on borrower engagement, with the help of a vendor solutions, servicers can deploy technology that will improve the servicing experience and borrower communications across the organization. Innovative servicers can see beyond the plethora of regulations

5 and guidelines, can overcome the angst over examination and enforcement actions, and embrace technologies that empower the borrower to self-serve. Clarifire provides a web-based workflow automation platform that guides the borrower through servicing activities, supporting on-demand access, with bidirectional communication, status preferences, personalized dashboards, freeing up time and resources so servicers can focus on evolving their business, not defending it. To learn more about how CLARIFIRE can help you with borrower engagement, visit us at eclarifire.com. You may also contact us directly at or send an to LDelgado@eClarifire.com. Let us show you why CLARIFIRE truly is BRIGHTER AUTOMATION.