Editor’s Note: This feature originally appeared in the September issue of MReport, out now.
From helping servicers overcome systemic issues, to giving greater recognition to them for superior performance, Freddie Mac’s Servicing Success Program is helping servicers enhance their performance for mortgage loans. Yvette Gilmore, VP, Servicer Relationship & Performance Management at Freddie Mac spoke to MReport about the Servicing Success Program and how servicers can reimagine the business in an industry environment that is constantly changing.
M // Can you tell us more about the Servicing Success Program, and how it benefits servicers?
GILMORE // There are three components under the Servicing Success Program managed by my team and me. The first is our servicing success scorecard—a detailed performance metric that we lay out for servicers. The scorecard’s details are also available at a broader level so that servicers can determine what loans are driving the performance metrics in their results.
The second component is the loan file reviews, where we pull the collection files and compare what the servicer is doing to manage our loans against the policies that we publish in the Freddie Mac Seller/Servicer Guide. Incentives and remedies are our program’s third component. Our remedies help servicers overcome any systemic issues that cause loss to the firm. Those remedies dramatically decrease as the servicer’s performance improves, resulting in incentives for them.
We plan to make some changes to this program to further enhance managing servicer performance in 2019. At a broad level, the change would be to give greater recognition for superior performance and making sure we’re upfront about the difference between good servicing and great servicing.
M // What trends are you seeing on the servicing side of portfolios?
GILMORE // We’re seeing four trends on the default servicing side. The first and most obvious one is seriously delinquent levels (SDQ). In 2010, our SDQ rate was upwards of 4.2 percent. In January 2017, it fell below 1 percent. While these numbers are a culmination of how our team manages performance, the heavy lifting was done by our servicer clients who implemented the policies and procedures necessary to bring the right resources to their borrower clients.
The second trend is a change in the composition of our servicer clients. Around 2007, 90 percent of our clients were large national banks. Only 10 percent were nondepositories. In 2017, the share of large national banks doing business with us constituted around 60 percent to 66 percent and 34 percent is represented by nondepositories.
We have had to adjust to this change because the needs and requirements of those clients are different and we have learned to customize to those different needs.
The regulatory environment is the third trend. We just completed a 2017 mortgage market survey with Fannie Mae and FHFA and our clients were loud and clear about the regulatory environment leading to a definite focus on compliance and how that has led to making sure they’re heavily focused on borrower needs. Regulatory requirements have also driven a dramatic increase in lenders’ cost to service, which makes it incumbent upon us to facilitate efficiencies in the process and remove as much friction as possible given all other external issues servicers are dealing with.
The last trend is the need to innovate. As a business, servicing has not seen a lot of innovation in the last 20 years and to give servicers the efficiencies they demand, we must change our processes.
M // How do you think servicers should reimagine business?
GILMORE // In many ways, servicers are already reimagining their business. For example, one of the ways servicers are managing their different capital constraints is by changing their business model. A few years ago, we had three major subservicers. Now, our large national clients are finding it’s much more cost effective for them to become subservicers. Therefore, they are changing their models; because of which we need to change ours. So now we have scorecards for subservicers, master servicers, depositories, and everyone else in between.
Since servicers must have that level of visibility to manage their subservicing clients, we are giving them that level of visibility for their different lines f business.
We must also augment and change our processes to reduce documentation and optimally utilize our data. At Freddie Mac, it is very important for us to use our existing data without burdening the servicer to give us even more of it. Therefore, it is imperative for us to collect the right data to ensure that we recognize any systemic inefficiencies at the servicer side, as well as our own.
We are looking at reimagining issues like default title, expense reimbursement, and changes to our Workout Prospector, along with smaller, more incremental workstream changes to make it easier for servicers to do business with us.
M // How are nondepositories or nonbanks different from their peers?
GILMORE // Nondepositories tend to be much more cash sensitive, so when we think about expense reimbursement, we need to figure out ways to get them their funds faster with minimal rework and reconciliations on their part. We are working with our nonbank clients to ascertain what they need from us in that space. The key is to make sure that we are not introducing friction into the process by requesting a lot of documentation.
The more cash sensitive your customer is, the more incumbent it is upon you to make their job as cost effective as possible, so they can focus on things like managing the borrower experience and controlling delinquencies.
M // How do you facilitate positive servicing practices for change for homeowners?
GILMORE // Our file reviews are not just about finding inaccuracies with the servicer. They’re also to give us feedback on how we write our policies.
These reviews are also a feedback loop for us. If we see the same negative trend, then we’re not communicating enough because of which our requests are misinterpreted. That results with us making changes to the policy to provide more clarity or change something in it because it’s not easy to implement. As much as we try to make sure that we do that before we put out a policy, our file reviews show us areas where something isn’t working the way it should.
I cannot underestimate or understate the importance of having great associates and relationship managers who work day-in and day-out with their servicer clients to understand their business. Not THE business, their business.
As we’re thinking about making changes, either to a policy, technology, or process, we have people who have that voice of the customer inside Freddie Mac and they make sure that we have the right and correct line of sight into the end impact of what we’re working on for them. Additionally, our advisory boards preview changes we’re looking to make and give feedback from our servicers to say what may not work the way that we think it should.
Our goal at Freddie Mac is to make sure that we understand what those changes are going to be and not react to them but respond to them before they happen.
M // How can financial services law firms partner with Freddie Mac for the overall betterment of the industry?
GILMORE // In 2013, we stopped our Designated Counsel Program and today we work with law firms through tri-party agreements between them, our servicers, and us. We interact with them daily on litigative matters, conflicts, and issues they see at the state and federal level that are causing friction in the process. Through this information, we’re able to work with our counterparts for a response.
We also work with them to make sure that we’re correctly interpreting what they’re giving us and they’re letting us know if there are any trends we’re see
ing. That is really how we work together so effectively.
M // As an industry veteran, what would be your advice to someone who is just joining the mortgage industry?
GILMORE // I would advise them that the goals of servicing a loan are fairly straightforward, but the implementation of those goals is a complex process. So make sure that you’re networking with your industry peers; getting out to important conferences; make sure that you are engaged and involved in getting trained on what it takes, not just for your narrow focus area but broadly across the servicing space; and make sure that you understand what’s going on from a soup to nuts perspective. There are a lot of great jobs in the servicing industry and the key is to know them, know your peers, and get out there and help borrowers.