All posts in Brian Moore

Getting off on the right foot with mortgage servicing

by Brian Moore on May 2, 2013 in 2013, Brian Moore, Varolii News with No comments
Mortgage servicer starts on the right foot - first payment defaults drop 17%

Mortgage servicers have a tough job. Mortgages are typically the largest financial obligations a consumer takes on, and are often the most complex. Besides the loan itself, the mortgage relationship may include things like adjustable rates, mortgage insurance, and escrow accounts, any or all of which may be unfamiliar to the borrower. When the eventual mortgage servicer ends up being different than the original lender, it adds yet another wrinkle that can lead to confusion and dissatisfaction.

That's one of the reasons why the Consumer Financial Protection Bureau (CFPB) recently issued guidance  to servicers to address potential risks to consumers that may arise in connection with transfers of servicing. Their concerns are backed up by research from JD Powers and Associates.

At the recent National Mortgage News Mortgage Servicing conference, Craig Martin, a director in JD Powers mortgage practice gave a presentation entitled "Aligning Customer Service Best Practices with CFPB Guidelines: A Win-Win for Mortgage Servicers" where he shared this slide on servicer transitions:

jdpowers initial contact has large impact 1024x739 Getting off on the right foot with mortgage servicing

JD Power's research shows that borrowers who are welcomed with information about the transition by the new servicer rate their satisfaction 10 to 25% higher than those who are not welcomed.

While the CFPB requires services to send a written notice of a servicing transfer, many of Varolii's clients have found that a letter or even an elaborate welcome packet won't inform a borrower if they don't read it! That's why they go the extra step of delivering a welcome call to the borrower, letting them know about the transfer, important information about where and when to make their payments and offering to immediately connect them to a knowledgeable customer service representative if they have any questions or concerns.

Varolii recently assisted a top ten servicer in on-boarding a portfolio of over 300,000 loans with a campaign of interactive voice messages that did just these things. The servicer split the portfolio between Varolii and a call center outsourcer who used call center agents to make a call to the borrower. The Varolii solution cost 30% less per welcomed borrower, and the first payment default rate fifteen days after the first payment was due to the new servicer was 17% lower on Varolii treated accounts than those treated by the outsourcer.

I can't think of a better indicator of customer satisfaction than an on-time payment.

The Devil's in the Details – FTC Loses Clarity on Robocalls

by Brian Moore on April 18, 2013 in 2013, Brian Moore, Compliance, Varolii News with No comments
FTC’s blurred definitions may impact customer service phone calls

What was missing from the FTC's announcement of the winners of their Robocall Challenge?

Just one word.

MARKETING

Recently the FTC held a press conference to announce the winners of their $50,000 Robocall Challenge, launched October 2012, which asked the public to come up with a technical solution to block illegal robocalls. In his presentation of the awards and in answering subsequent questions from the media, Chuck Howard, acting director of the commission's Consumer Affairs division, never once clarified that what makes a pre-recorded phone message an "illegal robocall" is that they must be attempting to sell a product or service.

In other words, they must be MARKETING calls.

Unfortunately, not only did the acting director fail to provide this clarification, he instead said:

"It's illegal for companies to use any sort of pre-recorded device to place calls to consumers without express written authorization from the consumer."

That's a very disturbing misstatement of the actual rules for companies using pre-recorded messages to communicate time-sensitive information to customers about such things as delayed flights, upcoming appointments, prescription refills, possible credit card fraud or overdue payments. All of these and other customer service messages are in fact legal without requiring the customer to authorize them in writing.

What's more important is that customers want these messages. In a recent survey for the banking industry, we found that 54% of customers want to be immediately notified of irregular account activity or if changes are made to their account information. We also find that customer response rates to pre-recorded messages concerning the status of their application for credit or modification of an existing loan average above 65%, indicating a very high level of acceptance for a form of communication the FTC appears unwilling to acknowledge as beneficial.

While I applaud the enforcement action the FTC recently took to shut down the operations of a scam artist using pre-recorded messages to sell credit card interest rate reductions and extended warranties, I am worried that unless the commission does a better job of educating the public on the law, the call-blocking solutions proposed in response to their challenge will interfere with legitimate forms of customer communication.

That's why I propose the FTC begin using a new phrase to describe the illegal use of recorded messages for soliciting the sale of goods or services:

Robo-MARKETING-Calls

At the same time, they should make a distinction between Robo-MARKETING-Calls and the customer-pleasing, health-promoting, convenience-increasing, fraud-preventing, credit-improving communications they can refer to as:

Interactive-SERVICE-Calls

If they do this every time they address the topic of illegal calls, they will be presenting fair, balanced and accurate information to the public they are protecting, the businesses they are regulating, and the press who might otherwise miss the very important distinction.

Take Better Aim With Your Collections Messages

by Brian Moore on March 27, 2013 in 2013, Brian Moore, Collections, Varolii News with No comments

What in the world could flies in the urinals at Amsterdam's Schiphol airport have to do with improving the performance of your collections operation?

That's what a roomful of Varolii clients wondered when Dr. Mathew Isaac showed this picture during his presentation "The Message Effect: How Content and Channel Choice Influence Consumer Behavior" at our annual customer conference.

urinal speck Take Better Aim With Your Collections Messages

According to Dr. Isaac, a professor at Seattle University's Albers School of Business & Economics, the Dutch airport authorities have found that providing a target such as a fly (actually the image of a fly etched into the urinal porcelain) has reduced "spillage" in the men's restrooms by 80%. As he went on to explain, this gentle "nudge" is an example of how experiments in human psychology provide insights that can be applied to domains other than airport maintenance.

If you are designing messages to influence customer behavior, Dr. Isaac says there are three levers for motivating behavioral change: Words, Options and Channel.

Words, words, words

When it comes to words, how you say something is often as important as what you say. Consider "valence framing", which contrasts the impact of positively and negatively phrased statements. Research shows that sometimes its better to focus on the downside of not doing something rather than the upside of doing something. For example:

"If you don't quit smoking, you increase the risk of developing lung cancer" has proven a better smoking deterrent than "If you quit smoking, you reduce your risk of developing lung cancer"

Applying the same principal to a collections message suggests saying:

"If you don't make your payment today, you will incur a late charge" will cure more accounts than "If you make your payment today, you will avoid a late charge."

If one choice is good, three must be better?

The options we give to customers is another dimension of message design to consider. Specifically, limiting the number of options presented in a message can drive a higher response rate. Dr. Isaac cited a grocery store experiment where some shoppers were offered samples of six different flavors of organic fruit jams and other shoppers could choose from 24 different flavors. While both sample booths were equally busy with tasters, the booth that offered only six flavors resulted in 500% more product sales!

So even though you might offer your customers four different methods of payment (e.g. ACH, Credit Card, PIN-less Debit and Cash) through five different contact channels (e.g. Web, Smartphone Application, IVR, Kiosk and good old postal mail), its probably not a good idea to offer all of these in a collections message when a simple "to make your payment now, press 1" will do.

Switching channels

Picking the right channel for message delivery can not only affect your customer reach, but the channel by its very nature may be more conducive to collecting a payment from a past due account. Consider a phone call to a customer's workplace compared to a text message to their mobile phone. The customer may be very reluctant to converse with you in an open and honest fashion at their job about why they haven't paid their bill, let alone read off their bank account or credit card numbers to make a payment. But the same information delivered via a text message will let them take care of the problem in private, and it will often cost you less than the phone call.

The importance of testing

Dr. Isaac shared several other examples of how changes in content, options and channel have been shown to improve outcomes in healthcare, commerce and collections, but he made a point of closing his presentation with a call for experimentation. Only you can determine what works best for your company in the context of your products, services and the type of customer you serve and the best way to figure it out is to run randomly controlled tests that compare customer reaction to different strategies. Varolii can assist you in this effort, with everything from simple A vs. B testing to multi-variable experiments from which we derive predictive segmentation models.

We don't, however, offer stencils for your urinals. But you can order them online.

Debtors get new hope, collectors a new tool

by Brian Moore on March 11, 2013 in 2013, Brian Moore, Collections, Varolii News with No comments

VantageScore, the three major credit bureus' scoring competitor to Fico, has announced they will no longer be including paid off bad debts in calculating consumer's credit score.

VantageScore says cold, hard numbers motivated it to make the change. The company was trying to build a model that offered the best possible predictions of consumer behavior, and its mathematicians determined paid collections accounts are a poor predictor of default.

"At the end of the day, the mathematics had to win out from an objective standpoint, and not from a subjective standpoint," says VantageScore President and Chief Executive Officer Barrett Burns, though he is well aware of the controversy over counting unpaid collection accounts.

While there will be a raging debate about the validity and propriety of the move, from a consumer's perspective, it represents hope that a temporary financial setback won't necessarily raise their cost of credit for the foreseeable future.

Collectors should also benefit, as they could truthfully inform debtors that paying off their bad debts would in certain circumstances, improve their credit scores.

It will be interesting to see if Fico follows suit, and if the move blunts efforts in Congress to make it illegal to consider paid off medical debts in credit scoring.

The Nine Most Terrifying Words

by Brian Moore on March 4, 2013 in 2013, Banks/Finance, Brian Moore, Collections, Compliance, Varolii News with 2 Comments
CFPB's defines their recently released mortgage servicing rules

According to Ronald Reagan, the nine most terrifying words in the English language are “I’m from the government and I’m here to help” but my recent experience with the CFPB calls that into question.

During the recent MBA National Mortgage Servicing conference in Dallas, David Silberman, the CFPB's Associate Director of Research, Markets and Regulation, gave a brisk 90 minute review of the bureau's recently released rules for mortgage servicing.

How can I call a 90 minute review brisk? Considering the rules and accompanying analysis check in at over 800 pages, anything less would have provided only a glimpse at what lies within. Instead, Mr. Silberman did an admirable job of running the attendees through the soup to nuts of the meal we will all be consuming for the foreseeable future.

He also acknowledged there will inevitably be questions about the meaning and intent of many of the rules. That's why I was pleased, if somewhat skeptical, when he promoted the Office of Regulation's hotline (202-435-7700) as where you can "ask questions on how to interpret or apply the Bureau’s specific regulations."

Really? OK, then let's give that hotline a test drive.

Since among other things, Varolii helps our servicer clients communicate with borrowers who are behind on their mortgage payments, I was interested in better understanding Section 1024.39 of their Mortgage Servicing Rules under the Real Estate Settlement Procedures Act (Regulation X) which addresses “Early Intervention Requirements for Certain Borrowers”.

One of these requirements states that:

“A servicer shall establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency and, promptly after establishing live contact, inform such borrower about the availability of loss mitigation options if appropriate.”

That is all well and good – we’d expect most servicers to establish contact with their borrowers before they were 36 days past due, even without this rule, to reduce delinquency. But what is meant by "good faith efforts"?

To answer that question, the paragraph continues with the following:

“Good faith efforts to establish live contact consist of reasonable steps under the circumstances to reach a borrower and may include telephoning the borrower on more than one occasion or sending written or electronic communication encouraging the borrower to establish live contact with the servicer."

Now we're getting somewhere, but "electronic communication" isn't defined here or anywhere else in the document.

Time to call the hotline. Here's a rundown of my experience, including a couple of lessons learned should you wish to do the same.

Lesson 1: Don't bother calling. The hotline is answered by a recording that directs you to email your inquiry to cfpb_reginquiries@cfpb.gov. So you might as well start there, which I went ahead and did asking:

Would the term "electronic communication" include the following:

  1. Text messages sent to a mobile phone number provided by the borrower
  2. Emails sent to an email address provided by the borrower
  3. Push notifications sent to a smartphone application provided by the lender/servicer and installed by the borrower
  4. Interactive voice messages delivered to the borrower at a phone number they have provided

After hitting send, I got the following automatic response from the CFPB:

"Thank you for emailing the Consumer Financial Protection Bureau about your question regarding the Bureau’s regulations.  Please note that we do not provide written responses to questions and that generally we are not able to respond to questions the same business day.  Actual response times will vary depending on the number of questions we are handling and the amount of research needed to answer the question."

A bit disappointing - it seems you have to submit your question in writing, but they are not going to return the favor. And there is no clock ticking on the response time.

So imagine my surprise when less than 4 hours later, I get a call from an attorney at the CFPB.

First the bad news - she tells me I can't rely on what she says as legal advice, then reiterates the prohibition on providing a written response, quipping "what I say is not worth the paper it's written on" (I didn't laugh).

The good news is she said that all four of the methods I asked about would qualify as electronic communications, and if they encouraged the borrower to make live contact with the servicer, would demonstrate the good faith effort required by the rule.

Exactly what I wanted to hear, which brings me to:

Lesson 2: Keep a tape recorder handy. Based on this experience, I'd give the CFPB regulatory hotline a B+ for effort and solid B for results, marking them down only for the ethereal nature of their response. I'd encourage anyone with questions about their rules to try it out. You might even want to ask them the same thing I did to see if they are consistent in their response. If they are, this would be the first time I can honestly say I had a pleasant and productive encounter with a regulator.

Consumer Financial Protection - A Good Thing?

by Brian Moore on February 25, 2013 in 2013, Banks/Finance, Brian Moore, Compliance, Varolii News with No comments
Alphabet soup of governmental oversight on customer service engagement

The Consumer Financial Protection Bureau, better known as the CFPB, recently announced they were going to pay close attention to how mortgage servicers handle the transfer of accounts from one company to another. Ordinarily in reaction to such news, I’d be writing a rant about yet another expensive regulatory intrusion into an industry already struggling under the weight of consent decrees, AG settlements and often conflicting oversight from an alphabet soup's worth of governmental and quasi-governmental agencies.

But not this time.

Driven by market and regulatory pressures, several large banks have recently either off-loaded the servicing of huge numbers of mortgage loans or even their entire mortgage servicing business to other players in the industry. Many of these loans involve distressed borrowers who are struggling to make their payments and who are actively seeking any alternative to losing their home to foreclosure. For such borrowers, there are valid concerns that progress they’ve already made with their current servicer to modify their loan, or perhaps negotiate a short sale, may get lost in the process of a servicing transfer. Even borrowers who are current on their payments can be anxious about such a change in how their single largest obligation (and in some cases investment) is being managed, especially when they have no choice in the matter and the transfer is made from their name brand lender to a servicer they may never have heard of.

To prevent these borrower fears from becoming an unfortunate reality, the CFPB is expecting both the transferor (the one giving up the servicing) and transferee (the one getting the servicing) to work closely to insure there are no errors and no surprises in the transition. In particular, CFPB examiners will look for what the new servicer is doing to provide consumers accurate information about their loans, such as the amount they owe, the status of their loss mitigation application or plan, and their delinquency status, if relevant.

If you are a servicer taking on new loans through such large scale transfers, here are some things to consider doing with regard to providing consumers with accurate information, over and above the minimum regulatory requirements of a written notice:

  • Communicate with the borrower through multiple channels, including voice, text and email.
  • Use these contacts to verify loan details such as property address, principal balance, interest rate, monthly payment and status of the account. Also let them know how to enroll in automatic debits or where they should send their next payment.
  • Provide a way for the borrower to immediately connect with a knowledgeable representative (sort of a SPOC for the transfer transaction) if any of the information seems in error or if they are concerned about the status of any loss mitigation they were pursuing with the prior servicer.

Varolii recently assisted a top ten servicer in on-boarding a portfolio of over 300,000 loans with a campaign of interactive voice messages that did just these things. The servicer split the portfolio between Varolii and a call center outsourcer who used call center agents to make a call to the borrower. The Varolii solution cost 30% less per welcomed borrower, and the first payment default rate fifteen days after the first payment was due to the new servicer was 17% lower on Varolii treated accounts than those treated by the outsourcer.

The comparison suggests protecting the consumer does not necessarily mean breaking the bank.

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