At the end of 2024, 3.98% of all borrowers were more than 30 days behind on their mortgage payments, but just 0.45% were in foreclosure. The significant difference between these two figures shows that loss mitigation tactics work – when properly implemented.
Lenders who incorporate the following tactics can strengthen their portfolios against financial and reputational risk. However, implementing them requires significant investment in staff and oversight. Fortunately, there is a simpler way to reap the benefits of an effective loss mitigation program without the added work.
Data and Analytics for Proactive Delinquency Management
Before delinquencies occur, there are often warning signs that lenders can detect if they have access to comprehensive data about their portfolio. Some of the factors a lender should consider when determining delinquency risk include late payments, credit score changes, employment status, credit utilization, and recent credit inquiries. They can group borrowers based on similar characteristics and monitor these factors to assess the overall risk of their portfolio and particular segments.
When risk for a particular segment rises, the lender can take proactive measures to strengthen their overall portfolio, such as tightening underwriting criteria and diversifying. They can also adjust loss mitigation processes in the event these borrowers fall behind on payments. Lenders who take full advantage of the data available to them can improve the quality of their loan portfolio, save time spent on collections activities, and protect their profitability.
Early Intervention and Borrower Communication
Communication is essential in collections efforts – especially the first communication with the borrower after they fall behind on payments. An effective communication plan should include letters to the borrower’s address of record at regular intervals such as 15, 30, 45, and 90 days past the payment due date. These letters should emphasize the seriousness of the situation, the potential for the loss of the borrower’s property, and demand immediate payment. They should also encourage the borrower to apply for federal or state relief programs or other assistance where applicable.
While letters can be an important tool, loss mitigation agents should also employ regular phone calls to establish live communication with the borrower. Phone calls should be conducted in accordance with HUD and CFPB guidelines. The goal of these phone calls should be to collect prompt payment, obtain information regarding the reason for delinquency, or to structure a commitment for future payment.
Forbearance Plans Help Cure Delinquencies That Are Due to Short-Term Circumstances
Once contact has been established with a borrower there are two paths forward. Either the borrower makes the payment, or the loan servicer should proceed to explore other loss mitigation options – like forbearance plans.
A forbearance plan can be an effective option to help borrowers retain their loan through short-term financial difficulties. This solution is typically implemented when a loan is more than 90 days past due and the borrower has experienced a recent hardship like unexpected medical bills, job loss, or a natural disaster.
Forbearance involves pausing or reducing payments for a period of time – often up to six months. At the end of the forbearance period, the borrower resumes their normal payment schedule.
Attentive agents talking directly with borrowers can help sort through the available options to determine the fit that is most likely to fit the borrower’s circumstances and get the loan back on track to current status.
Loan Modifications Help Borrowers Through Lasting Financial Difficulties
If a borrower experiences a significant shift in their ability to repay that cannot be solved with a forbearance plan, a loan modification can be a viable solution. This process involves altering the terms of the loan to make it more affordable – such as extending the term or reducing the interest rate.
The first step to implementing a loan modification is a preliminary screening to determine the reason for the delinquency and whether loan modification is appropriate. If deemed an appropriate next step, the loss mitigation agent should request an application and supporting documentation from the borrower. After an initial evaluation, this information is sent to an underwriter.
During underwriting, lender eligibility requirements are used to analyze the borrower’s ability to repay the modified loan. Then, the lender can approve or deny the loan modification request based on the underwriter’s assessment.
Foreclosure Is a Final Opportunity to Minimize Losses
If other loss mitigation strategies fail, a lender can consider foreclosing on the property. This step is typically taken when a loan is more than 120 days delinquent and is appropriate when borrowers are uncooperative, non-responsive, or unwilling to cure the delinquency by other available means.
A Loan Servicing Partnership Simplifies Loss Mitigation for Lenders
Loss mitigation is an exceptionally time-consuming process that often requires a significant investment in staff and decades of experience. Fortunately, the right loan servicer is able to manage delinquencies as a part of a comprehensive loan servicing solution – taking the work off of their lender partners.
An effective loan servicer is able to collect the appropriate data from borrowers and implement the lender’s loss mitigation. They can also make outreach to establish communication with borrowers who are behind on their payments. This includes managing forbearance plans and loan modifications. If a loan proceeds to foreclosure, the loan servicer offers access to property management services including identifying, tracking, and paying bills related to property preservation.
In addition to implementing the loss mitigation plan, an effective partner can collect comprehensive data about a lender’s portfolio. Making important data available to the portfolio owners and lenders helps to improve visibility and prevent unnecessary losses.
To find the right loan servicer, assess a potential partner’s approach to borrower communication and payment collection. Also seek a loan servicer who provides an intuitive online platform to access portfolio data. The ideal partner will have a wealth of experience effectively curing delinquencies and helping lenders develop effective loss mitigation programs.
Partner With AmeriNat for Loan Servicing with Effective Loss Mitigation
At AmeriNat, our collections activities are intended to cure delinquencies in the shortest time possible and with the most beneficial outcome for lenders. We monitor delinquencies and follow-up with borrowers based on GSE standards, industry best practices, and a lender’s servicing and program requirements – while complying with applicable regulations.
Loss mitigation is just one part of our comprehensive loan servicing program. We also provide access to valuable insights and data reporting to help lenders get the most from their loan portfolios plus excellent borrower support.
To learn more and get started, contact us today.
