Working with the Modern Mortgage Consumer

  • Written by Sam Eidson

eidson samAlmost 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.

How I Handle Federal and Private Student Loan Collections

  • Written by Sam Eidson

eidson samMany are concerned that our nation is heading in the direction of another financial crisis. Almost 10 years since the great recession involving sub-prime mortgage loans, we could be facing another collapse due to the excessive amount of student loan debt affecting over 44 million Americans owing more than $1.4 trillion. That’s about $620 billion more than the total U.S. credit card debt and it’s getting worse with over 3,000 student loans going into default every day. Former students with and without a degree have become distressed borrowers needing assistance. The accounts receivable management profession plays a vital role in helping these borrowers resolve their unpaid debt. While both federal and private student loans offer high volume, consistent placements and larger average size balances, there are many differences between the two. Today we discuss some of the differences and our collection approach for each product.

In most cases the student doesn’t have credit history in order to qualify for the loan on their own. Often their parent or grandparent will cosign for the loan. Initially I attempt to reach the former student in an effort to set up a repayment plan. Once I make contact I set the tone by demanding the balance. After I have the borrowers attention I then update their full and complete information. The demographics I update are: the mailing address, phone numbers and, most importantly, their place of employment. I always avoid yes and no questions and ask less important questions that lead into the main question I want to ask. For example, I ask if they are working full time or part time. I then ask what their occupation is and for whom they work? By starting with non-invasive questions the borrower becomes comfortable and you lead them to the answer you desire.

If I get the runaround from the borrower or if they do not have the ability to pay, I head straight to the co-borrower. Even though the co-borrower signed their guarantee they really don’t want to pay for the loan. They have their own expenses and did not expect for the loan they guaranteed to go into default. It’s our job to educate the co-borrower and advise them why it’s important for them to accept responsibility and repay the loan. Once the borrower or co-borrower has agreed to pay, setting them up on a secured arrangement is of the utmost importance. When demanding payment I give them the options that are best suited to resolve the account. I advise them that we can set the arrangement up via checking or savings and ask which option is best for them. If they claim to not have their checkbook I advise them that I can get the routing number so long as they know their account number. If they claim to not know their account number I immediately respond saying, “that’s okay, we can make an exception and set it up via debit card. Go ahead with your card number as soon as you’re ready.” I have found success with the aforementioned collection approach for all types of debt throughout my career.

Federal loans offer income-based payment plans so collectors are able to offer various options to the borrower. Unlike private loans the statute of limitations doesn’t apply and many of the loans are non-dischargeable in bankruptcy. Federal loans can also be recovered by seizing income such as disability or tax refunds without having to take the borrower to court.

Private loans do not have as much flexibility when it comes to repayment plans. To make things even more difficult, the borrower could be under the impression that they already have an arrangement to repay the debt. This happens when the federal collector offers an arrangement that is all-encompassing. Unfortunately for the borrower the “all-encompassing” arrangement does not include their private lenders. If collectors are unable to resolve the loan on a voluntary basis with the borrower, private lenders may have to take the borrower to court and get a money judgment in order to use garnishment as a way of collecting. Once a judgment is in place the lender can also force liens on the borrowers’ assets. This approach may be necessary as private student loans are subject to the statute of limitations.

Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves as Secretary for the Missouri Collectors Association.

How to Get Into Municipal Utility Collection

  • Written by Sam Eidson

eidson samThere are many financial products agencies collect on and each one of them requires an acquired niche. One of the most unique products in the collection industry is public and municipal utilities. Both public and municipal utilities offer a range of essentials including electric, natural gas, water, environment waste, telecommunications and cable TV/internet. If your agency is able to get into this sector it can be very rewarding and could lead to more clients within the same arena.

One of the biggest challenges for an agency is gaining the opportunity to represent one of these companies. Most utility companies have outsourced to agencies they are comfortable with and don’t want to risk their public image on an unfamiliar servicer, especially if the agency has limited to no experience working their line of business. Your reputation in the ARM industry could be the biggest selling point to one of the many utility companies interested in giving you a chance. Offering a champion challenger competition may help your agency get a foot in the door. Once you’ve been given the opportunity you must make the most of it with compliant and productive recoveries.

In order to be compliant you must do more than follow state and federal rules and regulations. You must also understand and meet your clients’ requirements in order to successfully earn their business. In order to understand client requirements it’s important to review their agency manual or, at a minimum, coordinate a meeting to discuss expectations. Next you must communicate their expectations to your team and properly train all departments including accounting, client support, compliance and collections. Timely remits, accurate balance reconciliations, proper treatment of special handling accounts and a professional collection approach are essential to customer satisfaction. In some instances, creditors lack knowledge of regulation in debt collection so they rely on us as the experts to guide them through the process.

Understanding the product you are collecting can be essential to your agency’s success. Below I have listed a few questions I ask when onboarding a utility client:

1. What are their disconnect/reconnect policies?
2. Are late fees assessed, and if so, when and how much?
3. Is there a fee charged when disconnect or reconnect occurs?
4. Was a security deposit collected?
5. Would repayment result in reconnection?

During the collection process there are a few common situations your agents should consider: the customer you are calling may have a current account at their new address, the customer you are calling may reside with a current customer or the spouse of a current customer may owe from a previous address.

The average size balance on utility debt is relatively small so it’s critical to implement a strategy that yields results while mitigating expenses. For example: if the client does not require an initial dunning letter at placement you may want to letter upon contact as the law requires. If the client expects letters upon placement, I suggest skip tracing to ensure you have the most current consumer address prior to sending the letter.

Now let’s talk about scoring for the highest propensity to pay accounts. Whether you use a credit score or recovery score, the numerical value assigned to each account allows you to segment the business in tiers. The accounts with a higher propensity to pay should receive a comprehensive dialing strategy while the accounts with a lower propensity to pay receive a lighter approach. A few other metrics to use when segmenting the business is payment history, last payment date, recent charge-off, balance size and how long the consumer had their account. Another strategy could include credit reporting. While most utility companies don’t report positive or negative data to consumer reporting agencies, some of them encourage the outsourced agency to report the unpaid debt.

Analyzing key performance indicators allows you to determine whether your approach is providing the results needed to outperform your competitors. Contacts, payments and dollars collected are a few of the most important metrics. You can divide total contacts by total payments taken to give you a closing percentage and divide total fee by total payments taken to provide an average size payment. In order to calculate goals that challenge your competitors’ performance, take the net amount placed with your agency and multiply it by the liquidation rate your competition has or projects to have. This will give you the dollar amount needed to collect in order to take over first place.

Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves on the Board of Directors for the Missouri Collectors Association.

The Step-By-Step of Commercial Collections

  • Written by Sam Eidson

eidson samAlmost ten years into my collection career I was introduced to commercial collections. I was given the opportunity to collect for a postage meter provider and heavy equipment leasing company. The two clients were dedicated to me and I was provided an assistant to help with skip tracing and outbound calls. What I learned from this experience became invaluable. I quickly learned how you approach commercial debt is far different than consumer debt.

Although the FDCPA doesn’t apply to commercial collections, that doesn’t mean you can do whatever you want. In fact it’s the exact opposite. Whether you contact accounts payable, the office manager or owner, each require a unique approach. For example when you make contact with accounts payable you must remember they are not responsible for the debt, in some cases aren’t concerned about potential consequences and may have been directed not to pay the debt for various reasons such as financial hardship or a dispute of charges. When talking to an office manager they may not have the authority to cut a check and would have to communicate with the owner in order to get the invoice paid. Once you’ve determined they are not a decision maker, I recommend focusing your attempts toward the person who can make decisions. Often that person is the owner of the company. If you are able to make contact with the owner, you have to keep in mind they are used to giving orders, not taking them. They need to be treated with the same level of respect you would give to the owner of your company. There may be various reasons why an invoice went unpaid, sometimes the accounts payable department is unorganized and misses due dates or they have been advised to only pay the necessities until receivables come in.

I always went in to the call expecting to get paid. However, getting a first talk off payment can be challenging. Most of the time the company wants an updated invoice prior to releasing payment. Other times you may discuss the debt with someone who doesn’t have the autonomy to make the decision to release payment. I always took the chain of command approach. After sending our initial dunning letter I would call and ask to speak with accounts payable. So long as I’m making contact and talking money, I would allow them to do their job.

If I started to get the runaround I would then approach the personal guarantor or owner. Unfortunately calling the place of business in an attempt to reach the owner is nearly impossible. Employees in almost every company have been trained to screen calls so the owner isn’t caught off guard with unsolicited sales calls. That is where I became creative by using skip tracing tools to find the owners home or cell number. One tool I used was the Accurint People at Work feature which would provide the name and title of each employee within the company. You can search by company name, phone number or Federal Employer Identification Number. Once you find the company you are looking for you can drill down to the President, Owner or C-level associate by name or social (if provided).

As you can imagine, the last place an owner wants to take a business call is from the comfort of their own home. You quickly become top priority and find out why the invoice went unpaid. Some owners don’t even know the bills aren’t being paid. Others explain they are going through financial difficulty and need assistance. If they have personally guaranteed the loan they are legally obligated to pay and their credit can be affected. If the business is affiliated with Dun & Bradstreet, their business credit rating could also be affected.

In some cases the business has dissolved or been acquired. If the business has been dissolved but there isn’t a personal guarantor, the chances of getting payment are slim to none. If the business has been acquired you will need to discuss the details of the sale with ownership. Ask if new ownership purchased assets and liabilities or just assets. If there is collateral involved your client may have rights to the asset. If the collateral holds value find out if there is a Uniform Commercial Code (UCC) lien and try to arrange voluntary repossession.

Commercial collections can be very rewarding with the right approach.

Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves on the Board of Directors for the Missouri Collectors Association.

16 Things Your Letters Should Have

  • Written by Sam Eidson

eidson samCollection letters have been a pain point for many agencies in recent years due to the constant change and new regulations. The FDCPA and multiple states have individual requirements that must be followed in order to remain compliant. Failure to comply can result in negative audit findings, fines and lawsuits. Most recently the New York State Department of Financial Services (NYSDFS) released a compilation of codes, rules and regulations including initial statute of limitations and substantiation disclosures, itemization, payment schedules, quarterly statements and email restrictions. Case law suggests that agencies itemize the initial letter to avoid unfair practices. It is recommended or in some cases required to have a collection attorney review your written correspondence annually for risk assessment. Below are a few suggestions:

1. The text of each letter should be in black ink and not less than 11 point font size.

2. The mini-miranda should be stated verbatim on all letters: “This communication is an attempt to collect a debt by a debt collector. Any information obtained will be used for that purpose.”

3. The consumer name and address should be the only thing visible through the window envelope.

4. Settlement offer letters should state the following language after the offer, “We are not obligated to renew this offer.”

5. Avoid using 1099c or IRS reporting language.

Required disclosures have increased at the state and federal levels as a way to protect consumers from unfair, deceptive or abusive acts or practices. In addition to the 30-day validation disclosure, agencies are also required to include specific state text, credit reporting, obsolete debt and in some cases safe harbor language. Below are some examples of the required disclosures.

When collecting debt that is 1) beyond the statute of limitations, 2) not too old to credit report or 3) you are credit reporting the account to one or more credit bureaus, your initial communication letter should contain the following disclosure on the front side of the letter:

6. The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, we may continue to report it to the credit reporting agencies.

When collecting debt which is beyond the statute of limitations and too old to credit report, your initial communication letter should contain the following disclosures on the front side of the letter:

7. The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.

If the consumer is being charged any fee for any reason, including a convenience fee, vendor fee, payment processing fee, the letter referencing the fee should contain disclosure which is truthful, clear, and prominent of the following information:

8. The fact a fee will be charged.

9. The amount of the fee.

10. The number of times the fee will be charged.

11. The reason for the fee.

12. How consumers can avoid paying the fee.

In preparation of the CFPB’s final rules, I have created a list of items from their proposed rules. Agencies should be prepared to satisfy the requirements below and will need to work with their letter vendor to ensure the necessary changes won’t impact timing of working accounts.

13. The CFPB has proposed updates to the validation notice.

14. The CFPB has proposed requiring a Statement of Rights be sent in the initial communication and after 180 days if no confirmed consumer contact.

15. Are versions available in Spanish?

16. Proposed disclosures for time barred, intent to sue and credit reporting on obsolete debts.

The expense and time invested to create, manage, update and send letters affect overall profit margin. Agencies typically have two options: 1) send only the required letters by law or 2) create a series of letters to be sent during the lifecycle of an account. Agencies should analyze what letter strategy works best for their organization considering many factors including the type of account, duration of placement and return of investment. I suggest having a dedicated number assigned to your letters in order to fully understand the return on investment. Having a dedicated number allows you analyze key metrics such as right party contacts, number of payments and revenue generated. Divide the revenue generated by the cost of the letters to determine whether you are behind or ahead on cost.

Sam Eidson is the Director of Compliance for Delta Outsource Group, Inc. He also serves on the Board of Directors for the Missouri Collectors Association.