The idea of unexpected events having great impact on future history is not a new one. The 2nd century Roman satirist Juvenal coined the phrase “black swan” to depict something unusual and rare (in his case, he was pessimistically describing the rarity of “a good person”). It was a common expression for something highly improbable as far back as the Renaissance. In business, it refers to an event that is disruptive or even potentially catastrophic, and is perfectly descriptive of the mortgage industry’s experiences since 2008.
The mortgage meltdown was improbable, rare and cataclysmic, a black swan trifecta. And it led directly to the CFPB changes the industry is presently in the process of implementing; once the black swan appears, the rules change and a new reality emerges. Dealing with the industry’s lack of preparation is ushering in a new era of regulation, and it indirectly centers on mortgage technology.
Recall the early days of the foreclosure crisis and the “blanket mod/one size fits all” approach that big servicers first employed as a strategy to deal with regulator demands. Untold millions were spent in the often-fruitless process. The lesson learned is that high-touch, customized solutions work and that generic processes are an extreme waste of time. The special strategies that have evolved feature diverse component services providers – and excellent technology.
Wingspan Portfolio Advisors is a prime example. When we commenced operations in 2008, it was with an emphasis on high-touch methodology and technology developed specifically for the purpose of delivering it. A centralized data warehouse and specialized default management software platform served the individual loan resolution consultants with detailed information they could use to make pre-allowed decisions on modifications, for instance. At a time when others without such technology needed to go back and forth with traumatized borrowers (and similarly traumatized investors), we were able to make lasting decisions with consistent speed. Another key to success was the luxury of taking large amounts of time to establish trust and rapport with borrowers, leveraging our proven methods as enabled by the advanced technology approach. The high success rate achieved allowed us to offer a pricing model that rewarded positive results rather than passing costs through to servicers. Understandably, this factor was very popular with high volume servicers and had much to do with establishing the relationships we enjoy today as an essential strategic partner with large servicing organizations.
Today’s diversified component services providers are not solely for overflow, nor are they simply outsources for extraordinary circumstances, like black swan events. They are part of the post-meltdown reality in which mortgage servicers no longer have to be all things to all people, but instead can do what they do best – work with the vast majority of loans that pay as agreed. Component services providers are integral to the primary solution now with the less typical loans, and while servicers are outsourcing more work these days, the outsourcing is done to far fewer and much larger companies than before.
Five years ago, companies could enter the special servicing space with comparatively few resources; today, the barriers to entry are immense. These 21st century companies have significant financial resources, are technologically sophisticated, and possess well-tested infrastructures in systems, legal and all other aspects of servicing. They have bulletproof processes for every step in each of the functions they perform, allowing seamless compliance with CFPB and other requirements servicers face in the current regulatory environment.
Technology is not the answer, in and of itself, but it is the enabler. Without the right technology, the right methodology is virtually impossible to implement economically, regardless of how well it is conceived. Technology makes optimal execution possible, and it is an inherent quality of the successful modern component services provider as we strive to outwit that clever black swan.
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