By Lauren Bielski

In the months since the Obama Administration presented the American people with an overview of the $75 billion Homeowners Affordability and Stability Plan, known as HASP, the nation's mortgage servicers have been addressing potential participants mostly by manual or semi-automated processes. At the same time, they've investigated how to prepare for a "best practices" program execution as they go forward with workouts and get forced to scale.

In the recent past, vendors and outsourcers have, at the same time, stepped up their offerings to address automation issues, notes Craig Focardi, senior research director of residential mortgage lending and risk management at TowerGroup, based in Needham, Mass. Focardi has written research about the technology that will gain traction as a result of new mortgage rules and initiatives. He points out that vendors like FICO (formerly Fair Isaac); IBM; Alltel, with its LPS system; and ISGN, an Indian firm, have offerings to help service companies get a handle on refi volumes expected to spike up under HASP rules. Overture and MDA Mindbox are each offering the SaaS model of delivery of modernized repricing technology to streamline workouts.

The financial crisis is only partially in the past tense as some effects continue to change the housing landscape. During 2007, lenders had begun foreclosure proceedings on nearly 1.3 million properties, a 79% increase over 2006, as noted in Wikipedia. This increased to 2.3 million in 2008, an 81% increase versus 2007. As of August 2008, 9.2% of all mortgages outstanding were either delinquent or in foreclosure. Between August 2007 and October 2008, 936,439 U.S. residences completed foreclosure. Ten states accounted for 74% of the foreclosure filings during 2008; the top two (California and Florida) represented 41%. Nine states were above the national foreclosure rate average of 1.84% of households. The industry is not expected to return to profitability until next year.

With HASP, servicers face volumes of workouts that could easily be three times peak volumes of the past, creating a significant capacity challenge that servicers have already struggled to address. In fact, HASP already has generated ample interest among consumers hunting for a "bargain," or others who misunderstand who the program was designed to help.

Overall, the volume of workouts is expected to hit up to 5 million, representing a workload that will take two or three years to complete. There will be many homeowners who don't meet the requirements that will need to be directed elsewhere. At the same time, servicers will need to sort through their client base, segmenting applicants who need immediate help versus those who can wait for revised terms.

So there will be outbound efforts that should occur to get homeowners qualified and processed, even as inbound operations are set up to handle homeowner questions and processing requirements. Analytics can help speed and streamline any outbound program a servicer enacts.

Old Systems

This is hitting the industry at a time when aging and inconsistent legacy technology is the norm and creates problems of its own. The takeaway of all this? Processing facilities will need to be redesigned to handle big volumes of applicants and then actual workouts, and systems will also need to reconfigured to, in effect, "re-originate" masses of loans while handling each one "in a HASP way," with an emphasis on being able to prove that a certain process was gone through, that the process was consistent, and that the process was fair.

Ocwen Financial, a leading Subprime Mortgage Servicer issued a press release back in April stating that it was one of the first in the country to begin to execute modifications the HASP way. In a letter to President Obama, Ocwen president Ronald M. Faris noted: "We were well positioned for a vigorous launch of the program .... [because we had] a scalable loan processing platform." The company also increased key staffing by 65%.

While some experts believe that extra personnel and outsource expertise will be hard to find, Focardi thinks the industry will continue to rely on outsourcers to address any gaps in capabilities. "About a third of the group will upgrade their environments significantly. The rest will either do little to nothing or come up with short-term solutions," he says, reminding CIOZone that servicers that meet government requirements and, in essence, help homeowners avoid foreclosure will receive incentives of a $1,000 per successful loan.

Focardi adds that applications such as predictive analytics could help identify homeowners in trouble earlier in the cycle, which is, after all, the highest aspiration of the program.

Still, there are those in the industry, as evidenced in comments made in mortgage trades, who believe many who last experienced anything like the current housing crisis are mostly retired. Those who remain are in short supply. What this means is that scripting, standardized workflow, and other specialized applications will be required to give personnel "electronic training wheels" so to speak, guiding them through a structured, intelligent work process. Applicants will need to be guided through the eligibility process and later, administrative workers will need take various application processing steps.

Although an industry story, HASP technology -- and whether or not the Obama program ushers in widespread modernization -- is an interesting example of the relationship between compliance and tech adoption. "The great untold story here," notes Focardi, "is the regulatory pressure on mortgage companies, servicers, and vendors despite the economic pressures they already face," he says. "They need to get certain things done even if the timing isn't especially convenient."

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