Almost a decade ago the mortgage industry turned upside down. Many factors led to the crash including our economy, subprime lending and adjustable rate mortgages. As a young collector in my twenties I was able to purchase my first home using a stated income and was given a 30-year mortgage with a rate that adjusted after seven years. We submitted a stated income to the lender in order to get approved because 60% of my annual income earned was from bonus checks. For some, this process for approval backfired because the loan was based on income that was not guaranteed. Some of you may remember the refinance boom. Loan officers attempted to assist consumers by refinancing their home loan for bill consolidation, home improvements or to avoid their interest rate and monthly payment from increasing after adjustment. The opportunity to make large commission checks even prompted a few of my colleagues to leave the collection industry and become loan officers. A few of them partnered with me to where I would send the consumer their way and, if they could, refinance the consumer’s loan where I would receive a kickback. The agency I worked at saw this as an opportunity and even opened a mortgage company to which we could refer consumers. Could you imagine how that would be received given today’s regulatory environment? Things sure have changed over the years as we make our recovery from the economic crash. There are many home loans left unpaid needing assistance from collection agencies.
All collection products require a unique approach and the same holds true for unpaid mortgages. Collectors must have advanced skills in order to be successful collecting mortgages. As with any type of debt collection, knowledge is power. Having information such as property address, property value, a recent credit report and knowing state laws are essential prior to making contact. Once contact is made take time with the consumer and allow them to explain their situation. The information they provide will help you understand which options will best fit the consumer’s need. After you’ve listened to the consumer you can begin walking them through what is best for them and the servicer. If the consumer is still in the home, find out if they want to keep the home or if they just want out. By the time you reach them the servicer has more than likely already offered a deferment or loan modification. If the consumer wants to keep the home, they have equity and their credit allows they may be able to refinance their loan. If they don’t have equity and their credit doesn’t support a refinance, try to work out a payment plan that satisfies the servicer in an effort to avoid foreclosure. If they want out of the home and have equity they may be able to sell and could potentially make a profit. If they are too far upside down they may have no other option but to short sale the home. In order for this to happen all the lien holders would have to agree on a payoff. Having a copy of the HUD will help you determine how much money is available and ensure you negotiate the best possible settlement. If the consumer is not willing to cooperate, foreclosure may be inevitable.
If you are collecting on a second mortgage or line of credit state law may protect consumers who are current on their first mortgage. Consumer protection laws limit the ability to collect these types of debt forcing many lenders to wait until the home sells eventually satisfying the lien. Once the home has been foreclosed the second mortgage or line of credit becomes unsecured debt.
If the home has already been foreclosed, making contact with the consumer could be challenging. A certain amount of skip tracing may be needed in order to obtain the most recent address, employer or phone number. For many Americans their home is the last thing they stop paying so if they’ve recently fallen delinquent their financial situation may not allow them to repay at this time. Again that’s where collectors must have the ability to listen and solve problems while not being intimidated by large balances. Volume and resources have forced many agencies to rely on dialing systems however based on the need for skip tracing and personal touch I recommend a dedicated team of experienced professionals that are geared towards a manual dialing strategy.
Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves as Secretary for the Missouri Collectors Association.