This piece was co-authored by Sridhar Loganathan, and originally appeared in the August 2024 edition of MortgagePoint magazine, online now.
After years of record low default and foreclosure volume, any significant new default servicing volume could be called “a spike.” But with a number of COVID-era assistance programs coming to an end, and the continued presence of challenging consumer financial pressures, it appears default servicers will soon be managing increased demand.
In fact, some already are, with ATTOM’s January 2024 U.S. Foreclosure Market Report reporting that there were more than 30,000 foreclosure filings in January. That’s up 10% from the previous month, and 5% year-over-year.
A stubbornly high cost of living and other sustained financial challenges also suggest that homeowners will be under pressure for the short-term future. Redfin recently reported that monthly mortgage payments in 2024 are roughly $250 higher than they were in 2023.
While it can be debated as to how much default and foreclosure activity lies ahead, there is no doubt that default servicers, long accustomed to lean operations and low volumes, are now confronted with a potential pivot. As is the case with any market rebound, firms could quickly be faced with inadequate resources to manage any level of order surge, resulting in slower turnaround times, lapses in customer service or worse.
On the other hand, although the indicators are there, it is not set in stone that 2024 will be a year of massive foreclosure volume.
What’s a servicer to do? Gamble on uncertain revenues and invest in modern technology to manage the anticipated volume? Or, hold steady, stay lean, and risk being overwhelmed by a spike in volume?
The options of chasing expensive technology or risking operational challenges by standing pat are not the only choices for default servicers. As the mortgage origination industry has recently learned, the best technology is not always the latest, flashiest, and most expensive. It is not always expensive to audit one’s existing operation and craft a strategic plan that possibly includes upgrading technology in affordable stages. And it is entirely possible for servicers to update their operations now, making them more scalable and flexible, without necessarily breaking the bank.
Start by Evaluating What You Already Have
One of the most effective approaches to modernization is to take a critical look at your existing systems. Most servicing companies likely already have capable technology platforms, although they may not be making optimal use of them. Conversely, they may have a tech stack that has overlapping or redundant functions and capabilities. That said, with a comprehensive and objective evaluation, servicers can take the first steps toward preparing fully for any spike in order volume.
Any effective audit should start with a careful review of existing platforms and other elements of one’s tech stack. There is a good chance some of the solutions that have been earmarked for certain, specific functions may have additional features or modules that can be activated to address new requirements or expand a firm’s scope of automation. With the help of their technology providers, default servicers seeking to optimize their automation can then train their teams to utilize these untapped capabilities, essentially adding efficiency to their operations without the major investment that many modern technologies require.
Where they are available, updating legacy systems with modern interfaces and integrations is another effective way to improve the impact of one’s existing tech stack. The bottom line? Servicers should not start any effort to upgrade their operations by assuming they cannot get more out of the technologies they are already using. That said, there are other reasonably priced forms of technology out there that can help fill the “gaps” in one’s tech architecture.
Attacking the “Gaps” in Your Tech Stack
Rather than overhauling their entire technology infrastructure for something that’s simply newer, default servicers can achieve meaningful modernization by strategically addressing the biggest weaknesses in their operational workflows. This targeted approach allows servicers to allocate resources where they will have the most impact, without incurring unnecessary expenses.
Once they have identified their biggest weaknesses, servicers can then leverage “in between” technologies such as Robotic Process Automation (RPA) to fill gaps or address major chokepoints in their workflows. These intermediate solutions offer a pragmatic approach to modernization by targeting specific pain points without the need for a comprehensive overhaul. Additionally, RPA solutions are often less expensive than larger operating platforms, and can be used to optimize existing technology.
For example, RPA can automate repetitive tasks and routine processes, especially where critical elements of a tech stack are not integrated, freeing up human resources to focus on more complex and value-added activities. By deploying bots to handle data entry, document processing, or system reconciliations, servicers can increase throughput and reduce errors with minimal disruption to existing operations.
Beyond RPA, servicers can also target limited core technology upgrades where they have the most impact on the operation. For example, upgrading the customer relationship management (CRM) platform alone can provide significant benefits in terms of scalability, automation, and data management. By focusing on these foundational elements, servicers can build a solid technological foundation that can adapt to changing needs and growing volumes.
As default servicers prepare for the anticipated spike in default, the imperative to modernize operations has never been greater. However, in the rush to adapt to changing circumstances, it is essential to remember that the best technology is not always the newest or most expensive.
By strategically evaluating and updating existing systems, investing in key components of the tech stack, and leveraging “in between” technologies like RPA to fill gaps in workflows, default servicers can upgrade their scalability and flexibility without engaging in massive technology debt spending. In doing so, they can position themselves not only to optimally manage spiking order volume, but also to thrive in a new default servicing world that will demand scalability and the capability to pivot with quickly changing conditions.
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