Bridging Communication Gap With Distressed Borrowers

Developing trust between a lender-servicer and distressed borrower during the loss mitigation process has been a barrier within the mortgage industry for several years. But banks and service providers have stepped up their communication efforts in order to bridge the gap that currently exists between all parties involved in this process.

During a phone interview Managing REO conducted with three industry executives, all the participants agreed that one of the hardest steps of the loss mitigation process is obtaining a consumers confidence.

There is not a lot of confidence in the mortgage industry right now, said Kevin Osuna, vice president of default services for Gateway Mortgage Group, Tulsa, Okla., during the discussion. Consumers, in particular younger adults, are also asking the question, Is homeownership part of the American dream?

Eric Lichtenheld, president of Tucson, Ariz.-based Integra Group Real Estate, compared the current housing crisis to a 9.0 earthquake and he believes there is a lot of aftershock that is being worked on right now.

It really takes a lot of time and effort from all parties involved in this process to get the confidence from people so they will consider alternatives, Lichtenheld said during the discussion.

One difficult aspect about increasing a consumers confidence is being able to effectively communicate with a distressed homeowner to tell them about their alternative options to foreclosure, including a short sale, loan modification, or deed-in-lieu.

For these struggling borrowers who cant meet their monthly mortgage payments, firms have created door knocking campaigns, increased their supply of collection letters to borrowers, and are also now making excessive phone calls as communication methods to alert these individuals about various methods available to them besides foreclosure. According to Lender Processing Services, there are over 3.4 million properties 30 or more days past due, but not in foreclosure nationwide.

I think servicers are trying hard to make contact with borrowers so they gain confidence that the servicers really are aligned with them and have their best interest in heart, said Brent Taggart, senior vice president of business development for Green River Capital. Borrowers are also speaking with a third party versus speaking with their servicer because its easier to speak to someone who is removed from the process. Its all about building trust.

Taggart said the West Valley, Utah-based companys door knocking campaign is built around determining what the borrowers intentions are. He added that real estate agents play an important role in this strategy because some arent as enthusiastic about selling a short sale or REO property asset compared to a retail home because they want to make money rather than help a distressed borrower.

Agents that go above and beyond to try to help a borrower find an alternative house to live in and stabilize the region are the best agents, Taggart told this publication. Part of that is educating the borrowers, educating the agents and neighborhood home consultants in going through that process. Because without that, the situation were in now is just going to keep happening. Were going to take two steps forward and one step back. 

On the servicing side, Osuna said 99% of Gateways borrowers respond to collection letters. But he emphasized that there is not one particular outreach method, whether it is collection letters, door knocking, or phone calls, that is more effective in getting a borrower to respond.

It takes all of these efforts to get a skeptical consumer who doesnt believe in the mortgage industry to build that trust, Osuna said. Its this cumulative effect of consistently communicating with the borrower that we want to help and can help whether its with us directly or a third party. Consistency of message, even going back to when the customer is current on their loan, is one of the most important steps of outreach.

In one of the hardest hit areas of the country, these communication strategies seem to be working. In Pima County, Ariz., the number two foreclosure county in the Copper State, short sales are up 50% over the last year. Lichtenheld said that within the last six months, this region has also seen more short sale activity than REO volume taking place.

Meanwhile, Osuna has noticed that short sales are most frequently happening with borrowers that are offered a good alternative housing option or cash incentive. For example, if a homeowner is presented only $5,000 to do a short sale for a $300,000 to $400,000 home, there is no reason to move forward with the transaction, especially if it takes two years to foreclose on this property, which is the case in several judicial states nationwide.

However, service providers need to continue educating homeowners who are not satisfied with their short sale incentives about the impact an eventual foreclosure has on their credit score.

Its all about education, Lichtenheld said. There are some incredible relocation assistance programs out there and its about breaking through with these people in these houses the mental barriers that they have great alternatives to think about and how your life could be impacted.

Read More: By Evan Nemeroff , mortgage servicing news