Donna Schmidt is President and CEO of DLS Servicing. A seasoned professional with four decades of leadership experience in the mortgage industry, she is a sought-after authority on loss mitigation compliance. Schmidt is also the co-founder of WaterfallCalc, an online loss mitigation decision and calculation tool. She can be reached at DSchmidt@DLS-Servicing.com.
How did you get your start in the mortgage space?
My aunt worked in a real estate office and became friends with a loan officer, who mentioned his company desperately needed mortgage processors. I was still in college, looking for work, and their home office was close to my home. The rest is history.
What attracted you to the industry?
At that time, interest rates had risen to 20%, so the handwriting was on the wall that I would soon be out of a job. While not everyone was getting a mortgage, many people already had one—so I began looking for a job in mortgage servicing. I was hired by Carteret Savings Bank to work in the tax escrow department. I found the diversity of the mortgage servicing functions and the constantly changing regulatory requirements both challenging and interesting. I was hooked. I ended up working in nearly every area of mortgage servicing, except cash management and investor reporting. I loved it all.
What are some of your day-to-day responsibilities in your role at DLS Servicing?
DLS began as a one-person consulting firm and remained that way for the first 15 years. When the housing crisis hit in 2008, one of my clients asked for help with their rapidly increasing default rates. Prior to the crisis, my client would receive five loss mitigation applications a month, but during the crisis it escalated to over 200. So, I set up shop at my dining room table, hired a few friends and neighbors who had recently been laid off, and we began helping our client with loss mitigation reviews and modification calculations.
We quickly grew from my dining table to office space, and over the last 15 years, we went from working exclusively with all-paper files and Excel spreadsheets to a completely paperless environment. We designed a fully functional online application that processes loss mitigation waterfalls for every loan type, which became WaterfallCalc. Today, we operate out of two offices in Western Michigan. My day-to-day functions primarily revolve around continually improving operational efficiencies, ensuring data security, and meeting or exceeding client expectations. We consistently review industry regulations to ensure we are meeting the letter and intent of the rules.
We work closely with our clients to assist them with their compliance responsibilities. They handle borrower
solicitation, borrower and agency communications, and posting of loss mitigation options. We provide loss mitigation support services, including data entry into the waterfall application, documentation support, preparation and mailing of legal documents codifying the loss mitigation option, as well as FHA loss
mitigation claim transmittals.
With the Trump administration working to downsize or close the CFPB, what impact could such an action have on the servicing space?
We prepared a white paper in March detailing the damaging unintended consequences that the CFPB caused in mortgage servicing and how there is already sufficient industry oversight by numerous government agencies. There is so much redundancy in oversight that moving the few areas where there is no overlap to one of the other agencies would be very beneficial. In my view, the CFPB lacked the detailed industry knowledge needed to craft effective rules. This caused significant harm, especially to VA borrowers during the pandemic, a topic we discuss in the white paper.
How would the nation’s borrowers be affected should that happen?
Moving oversight to an agency such as HUD that has more experience with the complexities of the mortgage finance industry would benefit borrowers. Since the housing crisis, the FHA, VA, and USDA have done an outstanding job in aligning their requirements as much as possible. These agencies, as well as Fannie Mae
and Freddie Mac, all service diverse segments of the population.
Servicers need to be held accountable for timely responses, but they also require flexibility to address their
unique portfolios. The CFPB’s approach of treating all loan types the same led to headaches for both borrowers and servicers. What works in loss mitigation for a conventional GSE loan, where a borrower may have 40% in equity, does not necessarily work for an FHA loan held by a first-time homebuyer who has only 3% equity and limited budgeting experience.
What role will the servicing space play in the rebuilding of Los Angeles after this year’s wildfires?
The past decade of natural disasters has posed serious challenges for both homeowners and servicers. The good news is the housing agencies have already realigned their approach to address these events, and many servicers have programmed their responses.
In our case, the response to the LA wildfires fits into our established procedures. At DLS, we provide automatic forbearance agreements that can be mailed to affected borrowers, and then our system tracks the expiration of those agreements. We then issue solicitations to see if the borrower can resume making their payments and is ready for a workout to resolve the default, or if they need more time to complete repairs and an extended forbearance.
We then work closely with our client partners to issue the correct paperwork to the borrower and help update their servicing system of record through reports or application programming interfaces (APIs). While we handle the mundane administrative work, our clients can focus on borrower communication and system memorialization.
What technologies do you feel will help servicers excel in the future?
The more self-service a servicer can offer to borrowers, the better. Not only does this allow borrowers to engage at their convenience, but it lowers the costs of servicing loans. We recently released a module within our loss mitigation application, Waterfall-Calc, that allows borrowers to submit a loss mitigation application or request for assistance from a mobile phone, tablet, or computer. Our servicer clients can either place a link on their websites or send the borrowers an email with a link to apply at their convenience. The applications are customizable based on loan type and client.
Since launching the module, we’ve seen a significant improvement in the borrower experience, and the feedback has been overwhelmingly positive. We are currently working on providing borrowers with visibility into their loss mitigation application’s progress. We feel that if consumers can track their pizza delivery, why can’t they receive real-time updates on their loss mitigation status?
What are the pros/cons to the use of AI (artificial intelligence) in the mortgage servicing space?
Communication is key in any borrower/servicer relationship. If AI can help servicers communicate clearly and
consistently across their whole portfolio, it will go a long way toward resolving complaints and increasing consumer satisfaction. Servicers, however, need to properly and cautiously review the accuracy of AI outputs. While AI can be an extremely beneficial tool, one small glitch in the programming or a subtle change in regulations could lead to widespread misinformation.
What trends do you see in the servicing marketplace currently?
The shift to streamlined loss mitigation options certainly has its place and fits into the proverbial 80/20 rule,
meaning 80% of borrowers will benefit from the simplicity of the process and reduced payments. Most agencies target a 20% to 25% reduction in the principal and interest portion of the monthly payment, either through a loan modification or combination of principal deferment and modification, all without the borrower submitting documentation. However, some borrowers will need more assistance.
For example, for cases where a co-borrower dies, or there’s a divorce, or a borrower transitions from employment to disability or retirement, there’s no opportunity to present these additional needs through streamlined loss mitigation options. Furthermore, many borrowers may think they need a lower payment, when in fact, they need to control their spending. I believe one of the unintended consequences of the new streamlined approach could be its misuse as a form of home equity financing by borrowers.
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