I spoke with someone in the industry recently that said something like 20%-30% of borrowers who are current on their mortgage at the time of modification later end up defaulting. If a borrower has fallen behind on payments, the rate is more like 70%-80%. Proactively pursuing borrowers in distress is a pre-delinquency management strategy, and it is gaining traction.
Loan portfolio management technologies (like predictive analytics, optimization and behavior modeling) are needed to identify who those distressed borrowers are. That’s critical. But then there’s another issue – effectively communicating with these borrowers. This has been a real struggle for banks servicers because of high default volumes. Call center hold times are in excess of 1 hour and call abandonment rates are 50%. A really high rate of loan mods are also not going through because of missing paperwork (something like 80% according to some of the discussions I’ve been involved in). How can servicers proactively pursue borrowers in distress?
One way can be through outbound voice automation technology. But what about mobile alerts? One of our clients raised this issue with me a few weeks ago. If I was a borrower in distress, would I rather get a phone call from my bank saying, “We see that you are loading up the balance on your credit card. Are you experiencing financial hardship?” No, because I don’t like talking on the phone after work (probably because I’m on the phone a lot during business hours). I also don’t really like talking to my bank, and certainly not my servicer.
What about getting a similar message through a mobile alert: “The portfolio monitoring we do indicates that you may currently be in financial distress. We would like to help. Would you prefer to split your next payment?” For me personally, this is much attractive.
Again, identifying who the distressed borrowers are, the degree of their distress, is critical or a bank/servicer will have a going out of business strategy. But combining loan portfolio management with something like mobile alerts could help banks prevent default (and re-default) with some (clearly not all) borrowers, and therefore pending reduce credit loss.