An American mortgage banking firm focused on the residential sub-prime segment is the customer. Their activities stretch across the Mortgage Banking value chain, making, servicing and selling loans. They are amongst the top 5 originators of residential sub-prime loans on the strength of their multi-channel origination programs, wholesale, correspondent as well as retail. In addition to servicing their own loans they are also sub-servicers of loans for other lenders. Their strong loan portfolio is offered to individual and institutional investors by securitizing loan pools.

As soon as the borrower defaults, a mortgage corporation has 2 options, foreclose on the loan or understand the reasons behind the default and work with the borrower to make the loan current again. The effort to work with the borrower to make the loan current again is referred to as Loss Mitigation. Typically, the mortgage bank looses money when a foreclosure happens, since foreclosed loans typically have a Loan to Value ratio of over 100% and any efforts to avoid foreclosure mitigates the loss, hence loss mitigation.

The loss mitigators have many workout options to offer to the borrower to resolve a default:

• Reinstatement
• Repayment Plan
• Modifications
• Negotiated Settlement
• Short Payoff
• Deed – in – Lieu
• Payoff

The selection of the appropriate workout option based on the current state of the borrower and the loan is extremely critical to ensure success.

The complexities within Loss Mitigation are as a result of the following:

• The selection of the correct workout option given the borrowers constraints, to maximize gain for the mortgage bank, while considering all available information and following internal guidelines and external regulations, is an extremely complex choice. To ensure that this is done consistently is the Holy Grail.
• There is a need for significant communication with the borrower. Doing this while ensuring one does not contravene state laws or FDCPA guidelines is a challenge.
• There are a lot of steps in the complete Loss Mitigation process with conditional escalation and approvals required. In addition some of the steps need to be executed by entities external to the Mortgage Bank such as the investor or Mortgage Insurer, since their approval is needed in some cases. There is also a need for special handling of High Risk cases such as Bankruptcies.
• Need to interface with a bunch of vendors such as appraiser, title company, attorney, Credit Bureau, etc.

Our Loss Mitigation solution includes the following:

• A Gain/Loss calculator which accurately calculated the gain or the loss the mortgage bank would make in case of each workout option. This provided a quantitative method for comparing workout options.
• A unique resolution model which used user defined business rules to qualitatively prioritize the different workout options. Some workout options were automatically rejected based on business rules. The business rules basically encode internal guidelines and external regulations.
• A workflow solution based on Weblogic Integration (WLI) implemented the complex business process including rules customer contact.
• A web based GUI to enable business users to work, review, approve, etc. This was extended to the investor and mortgage insurers for their approvals.
• Integration with a half a dozen internal systems including Fidelity MSP, the system of record and LenStar, a source of attorney fees and costs to ensure automated exchange of information about the loan
• Integration with external vendors using a SOA platform for services such as BPO and Credit Reports.

All of this was implemented using an industry standard J2EE stack on Weblogic Platform (WLP).

The solution provided the following benefits while automating the Loss Mitigation process:

• Improved Compliance – With disparate state specific rules and FDCPA guidelines
• Improved Accuracy – In calculating gain/loss
• Improved Decisions – Using comprehensive resolution model
• Improved Communication – With external vendors using automated interfaces
• Improved Image – With the customers as a result of improved service
• Improved Flexibility – Workflow and Business rules change with the business