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Mortgage Servicers Need To Better Prepare For Natural Disasters

In my experience, all the recent storms, wildfires and winter weather we’ve been seeing suggest servicers need to better prepare for insurance claims and increased risk of collateral losses. However, stories abound of disaster-damaged properties going through disorganized insurance claims processes, causing delayed repairs, angry borrowers, and increased expense and reputational damage for servicers. Everybody loses in these cases.


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The loss draft process—the management of funds from borrower-filed hazard insurance claims—is generally viewed today as frustrating and expensive due to inefficient communications, inflexible business rules, and an outdated, paper-intensive environment. This frustration, which compounds an already emotionally-charged situation for the storm victim, can poison the lender-borrower relationship and increase the risk of default.  


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A loss draft is a multi-party check issued by an insurance company to both the borrower and the lienholder when a collateral property is damaged. The intention is for the funds to be used by the borrower to make repairs on the property, as opposed to being absconded or diverted to other purposes. To make sure these funds are used correctly, lenders or servicers will require inspections and make progress payments during each step of the process. 


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Ideally, the loss draft process should end with the claim paid in full, the house repaired, and peace between the borrower and the lender. Unfortunately, I’ve seen many cases where this is handled today through a very paper-intensive process of mailing among the borrower, inspection companies, repair companies, and other parties involved in the process. Multiple documents and verification forms are required to protect both the lender and borrower, and most companies don’t have a technology solution with the ability to process these documents and to communicate the status of repairs and collateral condition electronically. 

The biggest concern with the loss drafts process is the delay in resolution stemming from the back and forth communications via phone or letter between the lender and borrower. Since most borrowers generally don’t understand or appreciate the need for the inspection, repair, and loss draft negotiation processes, they may not know what needs to happen next, causing delays and leaving them with feelings of anger and frustration.  

In the meantime, the servicer bears considerable risk when it comes to a damaged property. Asset protection is always important, but particularly in the case of a borrower who may be delinquent or who may become delinquent if they decide that repairing the property will require too much effort or additional out-of-pocket expenses.   Servicers should therefore do all they can to ensure the process is swift, intuitive, and easy for the borrower to navigate. 

Unfortunately, most loan servicing systems do not have robust tracking options for following the status of a loss draft request. Additionally, because natural disasters are unpredictable and the skills needed to deal with insurance-related issues may be concentrated in relatively few seasoned employees, servicers often find themselves shorthanded in storm seasons. In the meantime, traditional outsourced loss draft management models are priced on a monthly basis for the life of the claim, adding to expense and making it impossible to accurately predict costs of servicing due to the unpredictable timeframe to resolution.

Finally, due to the specificity in the requirements, banks and other investors have often adopted the Fannie Mae loss draft guidelines for use on their portfolios.  However, those guidelines may not be what is best for all circumstances, such as higher-value properties, low balance loans, and high wealth customers, as the levels of scrutiny can add further aggravation to a process no one volunteered to go through. 

We responded to these challenged by building an online Loss Draft portal that allows borrowers to register claims, upload documents, and request inspections in real time. 

Lenders can use the Loss Draft portal to review claim reports and configure risk models to allow for heightened flexibility, ease of processing disbursements, and full visibility into the status of the claim action. The automated system also has the potential to significantly reduce call volumes.

In the meantime, after we review the loss draft request and all documentation associated with the claim, our claims administrator will either endorse and release the funds back to the borrower or deposit them with the lender into a designated restricted escrow account to be released in progress disbursements. We can then manage the process through the portal, including ordering and inspections releasing draws until the repairs are completed and all funds have been disbursed.  Our claims management solution is priced on a flat fee per claim, which better aligns with the incentive to resolve cases quickly and doesn’t penalize the lender for delays outside of their control.  

The purpose of the loss draft process should be to provide a secure funding method that expedites the remediation of the property. Loss draft systems that leave little guesswork involved increase collaboration and transparency between borrowers and servicers while ensuring the efficient application of available insurance claim proceeds to the repair efforts. The end result should be a fully-restored property and an ongoing, mutually beneficial relationship between the borrower and the servicer.

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Perfecting The Borrower Experience Is All The Rage

As the industry is securely in a purchase market, improving the borrower experience is a key differentiator for lenders looking to close more loans. Prominent mortgage industry executives gathered in Washington, DC at the 8th Annual PROGRESS in Lending ENGAGE Event sponsored by Get Credit Healthy, QuestSoft and Optimal Blue, to really drill down on this industry trend. How can lenders offer a better borrower experience? Here’s what was said:

In talking about other companies outside of mortgage that do it right, Denis Brosnan, CEO at DIMONT, said, “My Dad is Amazon’s best friend. So, when people in this industry say that older folks won’t do things online, they’re wrong. What people don’t want is to call a call center. The biggest thing is to reach out to people. You need to be a professional advisor.”

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“When you think about the customer experience, you really need to white board and draft out the entire process first,” noted Elizabeth Karwowski, CEO at Get Credit Healthy. “From there you need to ask what else can you be doing to get the borrower more engaged. Bring in other folks from outside the industry to give their perspective. We have to create a better journey for the borrower.”

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“Borrowers are with you for 30 days, but LOs are with you for life,” added Joe Wilson, Chief Sales and Marketing Officer at SimpleNexus. “We need to ask: How can LOs create a better experience for borrowers? You have to enable LOs and others within your organization to think more about the borrower if the process is ever going to improve.”

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“We can start by doing a better job with the upfront validation piece,” concluded Eric Christensen, Chief Strategy Officer at LERETA. “The industry has done a great job at the point-of-sale, but that’s where it stops. You can’t just offer the borrower a good experience there and stop. We need to perfect the whole process, including the backend, as well.”

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Enhancing Profitability Through Better Compliance Management

Compliance has always imposed serious financial and human resource costs to servicers. Recent years have brought added pressure on the mortgage industry to better manage compliance and consider its significance. The industry responded by implementing new processes and technology to tighten up the manner in which lenders deal with regulations. Compliance is now considered a top priority by servicers, despite the CFPB’s recent moves to rethink regulation enforcement. It may come as a surprise that the vast majority of servicers are overspending on compliance, yet are still not in full compliance with the latest regulations. This makes them vulnerable during an audit, as well as less profitable.

A major flaw in servicers’ management of compliance is that there is an assumption that one, single universal national standard exists among their staff members, even if it is not official policy. This is misleading as each state has its own requirements that differ greatly from each other.

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Many servicers are actually non-compliant in stricter states, while spending too much on compliance in those that are less strict One example of this is in the collection of reinstatement fees. Some states forbid servicers from collecting them from consumers, yet many servicers do so, despite local regulations. At the same time these same servicers may be declining to collect them in states that permit it.

But how does a servicer, who may feel confident about compliance having already implemented extensive changes to the organization’s compliance efforts, determine whether or not they are falling victim to this trend?

Internal Audit to Access Risk

There are steps servicers can take to assess required changes to compliance and profitability. First, an internal audit should be conducted, with full support of C-level leadership. Audits help identify the level of risk and loss of profitability. Compliance, accounting staffs and the CFO should be involved in this step.

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A typical “red flag” that the internal auditing teams will look for may include the average write-off cost per loan in each state. The strictness of regulatory compliance and cost of doing business within each individual state varies considerably. However, as a general rule, a servicer can expect writing off $750 or more per loan. Anything less is an indicator the servicer may be collecting more than they are allowed. Conversely, if a servicer is writing off more than $1,750, this is a warning that not enough money is being collected. It is very common for servicers to find they are actually missing out on some payments while simultaneously collecting too much for other payments.

Outside Consultant to Seek Areas of Improvement

If the internal audit team finds issues, the next step is to hire an outside consultant to conduct an independent review and make recommendations. Outside consultants bring added objectivity to the project and can dig much deeper by spending more time on the issue than internal auditors. Outsiders can devote themselves full time to solving any problems without disrupting the flow of business. It is critical to include the internal auditing team in the process when changes are being implemented since they will have a much greater knowledge of the company’s culture and people than an outside consultant.

Replace Manual Processes With Automation

One of the most common recommended changes is to replace manual processes with automation. Automated processes enable reduction of errors and increased productivity. Many servicers may not consider technology upgrades until after fines have been levied by auditors. Passing audits without issue is more likely when automated processes are implemented and utilized properly.

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Transform Hiring and Training Processes

Another popular recommendation is to examine and alter recruiting and staffing processes where necessary. Many servicers try to cut costs by hiring people who have limited knowledge of complex compliance issues. Additionally, many of these servicers do not adequately train new staff about compliance once they’ve been hired. When inadequate training is combined with using outdated manual processes, the results can be even more disastrous.

Servicers should focus more on hiring staff with more compliance experience. Hiring staff with less experience because they are cheaper can often be more expensive to a servicer in the long run. Training should also not be viewed as a one-time effort. It should be ongoing throughout the year. Depending on the complexity of the regulations involved, retraining could occur as often as once a quarter.

Improve Quality Control

Finally, servicers need to redefine their quality control procedures. Servicers that have completed their own internal compliance audits will undoubtedly find errors or other violations that need to be corrected. Consultants can offer advice on modifications and revisions to existing quality control efforts.

Compliance checks should occur at every stage of the quality control workflow. Many lenders delay compliance checks until the end of the process. This can cause missteps and require rework. Modern quality control processes provide compliance training to most staff, who are enabled to validate their work before moving forward. All staff plays a vital role in the success of the quality control effort. It is a costly mistake to assume compliance is entirely the responsibility of compliance officers.
Too many servicers have become overconfident in their ability to meet regulatory standards because they have spent years building up their company’s compliance machine and devoting very significant resources to do so. Yet the vast majority are not as compliant as they may assume nor as profitable as they could be, and this puts them at significant financial risk while eating away at their bottom lines. Proactively assessing the level of compliance and risk within the business is the most practical manner in which to reduce risk and boost profitability.

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Improving Efficiencies By Combining Hazard And Investor Claims Processes

The servicer’s imperative post-foreclosure is to liquidate the property and seek recovery under whatever guaranty may exist for the loan. Given the complexity and inherent risk of these processes, servicers have traditionally engaged expert, third-party providers to assist with hazard insurance claims and investor claims. Historically, different companies have specialized in these discrete claim types, so servicers have gravitated toward the leading providers of those services to meet their specific needs.

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However, the “long tail” end of the mortgage crises has reached the areas of servicers responsible for conveyance and investor claims processing, causing volumes to spike and surfacing more comprehensive needs. So, what happens when a servicer needs assistance processing both hazard and investor claims? Must they partner with multiple providers? A few years ago, the answer might have been, “yes.” However, by bundling hazard and investor claims services, servicers can save time and money while producing better outcomes. This “collateral loss mitigation” approach recognizes the interconnectedness of processes and commonality of data elements in post-foreclosure mortgage loan servicing. By dual tracking work, compiling claims in advance, and leveraging insights gained from data processing in hazard claims, curtaiments (meeting timeframes) are minimized while recoveries for servicers are maximized.

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When a servicer engages a third-party provider for collateral loss mitigation, the investor claim begins while the hazard claim is still in process. During the resolution of the hazard claim, the third-party provider takes a proactive approach and begins work on the investor claim due to the similarities of the documents and the requests that are made when filing a hazard claim. In addition to ensuring consistency of process throughout, this approach enables the field services vendors to more quickly complete any repairs necessary to effectuate conveyance condition (“ICC”) for the property.

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We have seen a significant reduction in processing time when hazard claims adjustment and investor claims management processes are combined. In some cases, as many as ten days are shaved off the overall claims process. This streamlined approach not only reduces processing time for both types of claims, but it also potentially saves servicers hundreds of dollars per property. If a projection is done over the servicer’s portfolio, the savings could be significant with this proactive approach.

Servicers dealing with increased volumes of conveyances and investor claims should be looking to reduce risk and decrease timeframes. An effective third-party provider can assist by offering both hazard claims and investor claims processing as bundled services under the umbrella of collateral loss mitigation. This innovative approach, which combines economies of scale and commonality of data, assists in minimizing the risk of curtailments while ensuring maximum recoveries for servicers in both the hazard and investor claim domains.

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DIMONT Adds Auto Finance Industry Veteran

DIMONT, a provider of insurance claims adjusting and collateral loss mitigation services to the residential mortgage and auto lending industries, today announced that Mark Floyd has joined the firm as a board member, with a special focus on the automotive finance industry.

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Floyd is a seasoned auto finance executive, with more than 30 years of experience in banking and subprime lending. Most recently, he served as vice chairman and chief executive officer of Dallas-based subprime lender, Exeter Finance. He also held senior management positions at AmeriCredit Corp., including chief operations officer and president of dealer services, and executive vice president of strategic alliances. Prior to AmeriCredit, he served as president of the National Asset Placement Corp. and excelled in various leadership positions at banking institutions throughout Dallas.

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In his role as a DIMONT board member, Floyd will assemble and lead an advisory panel designed to provide guidance in client/services development within the automotive finance industry.

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“Mark has a proven track record of successfully building and leading a growing business platform,” said Denis Brosnan, president and chief executive officer of DIMONT. “We look forward to utilizing his expertise to help grow DIMONT’s solutions for the auto finance industry. His outstanding reputation in the industry, coupled with his wealth of experience and relationships, will help strengthen our presence as a best-in-class insurance claims service provider to auto lenders.”

“I look forward to building upon DIMONT’s strong foundation in the residential mortgage industry and expanding their reach into the auto finance space,” said Floyd. “Lenders will benefit tremendously from DIMONT’s products, service and dedication to excellence.”

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DIMONT Expands Auto Insurance Claims Division

DIMONT launched the strategic expansion of its auto insurance claims division. With 21 years of claims experience in the mortgage industry, DIMONT has leveraged that knowledge in its auto division and is already seeing positive results with clients maximizing their recoveries on repossessed portfolios.

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DIMONT’s processing is made more efficient by a proprietary technology system that tracks the claims progressions from start to finish, and provides total portfolio reporting throughout the process.

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In the past four months, DIMONT entered into partnerships with three new lenders to provide their auto claims services, including one of the largest lenders in the auto finance industry. The company has also joined the American Financial Services Association (AFSA) and will be exhibiting at its 34thIndependents Conference and Expo on April 18-21 in Las Vegas. DIMONT will be stationed at booth 217.

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“We’ve watched lenders repeatedly miss opportunities for revenue while working with auto claims, and we want to help avoid that,” said Denis Brosnan, president and chief executive officer of DIMONT. “Our specialists in claims recovery, commitment to customer service and focus on strategic partnerships enable us to pave a clear path into the auto industry.”

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How Servicers Can View Insurance Claims As A Win-Win

Defaults on FHA-backed loans are anticipated to increase over the next several years, resulting in an increase in the number of properties that are sitting vacant. This means that maintenance costs for servicers and their third-party parnters will only continue to rise. So, how can servicers effectively limit their losses on FHA loans that go into default? And, how can they limit claims on these properties?

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The risk of defaults on FHA loans is very high, but servicers can mitigate losses by establishing strong quality control procedures throughout the default resolution process. Servicers lose millions of dollars every year for what would otherwise be reimburseable collection expenses due to lack of documentation, over-allowable charges, etc. Instead, servicers must begin compiling their FHA claims upfront, for instance, when a loan first becomes delinquent.

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When an advance has been made, transaction data and documents from the servicer must be immeditaly retrieved. The data can then be populated into the investor template and invoices stored in a secure, document management system. This way, the claim is built throughout the default resolution process, eliminating the “paper chase” and other errors that cause reconveyance issues and prevent the claim from being filed in a timely manner.

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Of course, for all of this to take place, servicers must first significantly improve their understanding of the hazard insurance claims and investor claims processes. Servicers need to recognize the inextricable linkage between hazard claims and investor claims. Rather than siloed processes, they should be viewed as components of a connected ecosystem called Collateral Loss Mitigation.

The goal of hazard claims processing is to recover funds to be used in the repair and remediation of the collateral so that it can be liquidated. All too often, servicers’ conveyance processes are held up by ineffective approaches to hazard claims, and vice-versa. Instead, by taking a consolidated, end-to-end view of these processes, the funds to complete repairs are quickly recovered, the rehabilitation work is accomplished in a timely manner, the relevant documentation for the investor claim is more easily compiled and overall operational efficiencies are realized.

One way that servicers can avoid substantial fixed cost investments in technology, variable costs of highly skilled claims personnel and the compliance responsibility associated with their infrastructure and claims-related activities, is by outsourcing their claims management processes. Furthermore, the outsourcer should always recover more insurance and investor proceeds for the servicer, while eliminating curtailments. In short, that’s a Win-Win.

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DIMONT Gets Award

DIMONT, the largest provider of specialty insurance and loan administration services to the residential mortgage and auto loan industries, announced that the company was first runner up for the prestigious Prism Award given by the International Coaching Federation of North Texas. This award honors organizations that have demonstrated professional coaching as an effective leadership strategy.

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The award was presented to DIMONT after the company was nominated by Valerie Sokolosky, founder of Dallas-based Valerie & Company. DIMONT engaged Valerie & Company to further develop internal leadership and key company principles and values.

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“Denis Brosnan and his leadership team have completely changed the company culture from one that had limited opportunities for staff to communicate, engage and pursue career paths to one of widespread, long-term employee engagement,” said Valerie. “The new culture is dedicated to promoting collaborative communication, teaming and decision-making.

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Brosnan and his team enacted a four-phase plan beginning in 2015 to mobilize the company, set the stage for progress, transform the current processes, and maximize value. As a result, DIMONT has eliminated “assembly line” production in favor of collaboration, improved communication and staff engagement, as well as increased business.

“We were honored to be nominated and chosen for this award, and to tell our story of rising from uncertainty to success,” said Denis Brosnan, president and chief executive officer of DIMONT. “We are dedicated to building an engaged, productive and growing workforce, and look forward to the years to come.”

Here at PROGRESS in Lending, we just started accepting applications for our 2016 Innovations Awards. You can apply to win HERE.

Simplifying Hazard Claims

DIMONT, a provider of specialty insurance and collateral loss mitigation solutions to the residential and commercial financial services industries, today announced that the company offers strategic partnership opportunities with providers of property inspection services that simplify the way hazard claims are submitted for residential properties.

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Using an API connection, the property preservation vendors’ system connects to DIMONT’s proprietary system, Eldorado, to establish an immediate data delivery language between the two. This capability makes it possible for DIMONT to more easily submit hazard claims.

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“Strategic partnerships allow for greater efficiency in the hazard claims process, as well as the capability to streamline the delivery of data and images from a property preservation and inspection vendor directly to DIMONT’s document review specialists,” said Tom Stover, senior vice president of solutions development.

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DIMONT is now able to provide clients the same, best-in-class claims process, enhanced with a customized inspection, tailored to the needs of the hazard claims adjusters, as well as a dual party quality control process.

“With access to innovative technology from property inspection providers, we can automatically review all inspection documents and photos,” said Stover. “By reducing the time spent on the download and review process, our internal teams process claims more efficiently, reducing customer costs.”

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Vendor Celebrates 20 Years In Business

DIMONT, a provider of specialty insurance and loan administration services to the residential mortgage and auto loan industries, celebrates its 20th year in business by acknowledging several milestones the company achieved in 2016.

Noteworthy highlights include:

Improved on-boarding processes for clients by assigning them to one of six newly created internal Client Account Teams (CATs). The process, led by an on-boarding specialist, begins with  data analysis to help investor and servicer clients better measure the risks and rewards of investing in loans;

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Expanded executive team with various promotions and strategic new hires including Gary Barrett, executive vice president and chief financial officer; Fran Weichsel, senior vice president of client services; Tom Stover, senior vice president of solutions development; Collin Harbour, vice president of business development; Connie Baringer, director of support services; and Mark Lehner, director of client relations;

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Signed six new clients in the first three quarters;

Expanded into the subprime auto insurance industry with the enhancement to proprietary claims platform, Eldorado, to include the automated processing of auto insurance claims on repossessed vehicles for auto lenders;

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Began offering expansive “Collateral Loss Mitigation” services, including FHA and investor claims processing support;

Developed the interactive hazard insurance trivia game, “Name That Claim” which, by presenting humorous, real-life scenarios that combine a variety of claimable and non-claimable damage with estimated and actual recovery amounts secured by DIMONT, allows players to expand and increase their claims expertise.

“Our success and longevity is due in part to the advanced capabilities and continuous improvement of our services,” said Denis Brosnan, president and chief executive officer of DIMONT. “With our national reach, the services we provide and the philosophy that ‘Every Client is our VIP’, we will continue to increase productivity and provide a partnered approach to insurance solution services.”

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