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78 IT'S TIME FOR DEFAULT SERVICING TO EMBRACE BIG DATA By Karl Falk, CEO, ShortSave Big data may seem like buzzword du jour, but with the proper application, there is big potential in big data to transform the default servicing industry. Before you can harness your data, you need a way to capture it. is is where technology comes into play. e promise inherent in automation is increased efficiency and improved workflow. However, this assumes that the process being au- tomated is as optimized as it can be in its manual form. For example, the advent of the loan origina- tion system didn't fundamentally change the way a loan is manufactured—it simply automated the highly perfected process that already existed. In contrast, automation has done little to improve the default servicing process because the Consumer Financial Protection Bureau's (CFPB's) servicing rules changed the game drastically. It required servicers to pivot from a processing mentality to one focused on the customer experi- ence. at dramatic of a shift requires servicers to reassess how they operate, and the process has yet to catch up with servicers' new reality. Cost Considerations Cost to service non-performing loans is a huge consideration for servicers today. Accord- ing to a white paper from the Mortgage Bankers Association (MBA) and PriceWaterhouseCooper (PWC) titled, "e Changing Dynamics of the Mortgage Servicing Landscape," the per-loan cost for non-performing loan servicing jumped 489 percent between 2008 and 2013 to $2,357. Unsurprisingly, 2013 was the same year that the CFPB announced its servicing rules. is increased cost is due, in large part, to the CFPB's servicing rules and the mandated timelines to which servicers must adhere. ese timelines weren't built around how long the process currently takes. ey were built around what's reasonable for the consumer to expect an answer on their foreclosure alternative request. When the process doesn't fit the timeline, it's time to rethink the process. As the study points out, "While some ser- vicers have attempted to mitigate these cost-to- service increases through technological innova- tion, many remain challenged by legacy platforms that require time-consuming and costly changes to accommodate the latest requirements and servicing standards." e key word in that sentence is "legacy." Digitizing the current default servicing process may shave off a day or two of paperwork "transit time," but it doesn't fix the fundamental flaws inherent in the way the current process works. Whether the borrower will ultimately qualify for a loan workout doesn't matter – servicers spend the exact same amount of time and manpower on a "No" file as a "Yes" file. at needs to change. Data-Driven Decisions At the end of the day, all loss mitigation decisions are based on data provided by the consumer and an algorithm. ese are, by their very essence, data-driven decisions. However, using the current process, servicers spend an in- ordinate amount of time collecting supplemental documentation from the borrower that will only become relevant IF the borrower qualifies for a loan mod. Talk about putting the cart before the horse. In a fully digitized default servicing environ- ment built around the customer experience, it's possible to capture data at the first point of entry directly from the consumer. From there, the abil- ity to parse out and dissect that information cre- ates limitless possibilities for servicers to improve the process and reduce the cost-to-service while maintaining the transparency and accountability that is at the heart of the CFPB's servicing rules. One suggestion to improve the default servic- ing process is to revise the documents to make the process easier for borrowers to understand. e problem with that line of thinking is that it puts the burden of knowledge on the borrower and fails to address the systemic issues with the process itself. Borrowers are not experts in the loss mitiga- tion process. ey are, however, qualified to an- swer basic questions about their current financial situation, and their answers to these questions can enable the servicer to "triage" the situation and direct their efforts accordingly. In addition, the potential to improve the default industry's abys- mal borrower response rates by pre-qualifying those borrowers cannot be overstated. It's time for the default servicing industry to think big. By making big changes to their process and embracing big data, they have the potential to realize not merely big, but enormous, results that can transform default servicing into a service- oriented paragon of efficiency. Karl Falk is CEO and co-founder of Colorado- based ShortSave, a borrower-facing, self-service default servicing system. By reimagining the default servicing process, ShortSave has reduced loss mitiga- tion decision times to as little as 20 minutes. For more information on ShortSave, contact Karl at kfalk@ short-save.com. SPONSORED STORY Karl Falk, CEO, ShortSave