By Roy Urrico
Growing foreclosure filings and a staggering number of properties with past-due payments may put some credit unions and other smaller financial institutions that re-entered the mortgage business to regenerate profit margins, in unfamiliar territory. Dallas-based OrangeGrid launched its loss mitigation platform to quickly provide relief with focused default capabilities to mortgage servicers.
There were 30,881 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — in the May 2022 “U.S. Foreclosure Market Report” from real estate data curator ATTOM. That is up 1% from the previous month and 185% higher from a year ago. Additionally, according to Black Knight Data, 2020 ended with 1.7 million more seriously delinquent homeowners than at the start of that year.
The need for automated solutions in default loan servicing is paramount, according to Todd Mobraten, chief executive officer and founder of OrangeGrid, a developer of no code/low code software that aides mortgage servicers including credit unions and other financial institutions. “OrangeGrid provides innovative mortgage servicers with the ability to easily scale up when dealing with a sudden surge in loss mitigation cases.”
Mobraten added, “Our comprehensive default suite provides process and exception management capabilities offering dynamic workflows, dynamic dashboards, and configurable workflows to give users the ability to handle higher volumes of mortgage servicing duties more efficiently.”
Mobraten explained OrangeGrid provides a technical solution that helps mortgage servicers negotiate the fragmented data and application environments to handle exception management. “It is a highly regulated environment. There are lots of rules across the processes. If you fall outside of those rules, they are costly. It is really what impacts the margins. Not to mention (mortgages) are complex because lots of hands touch them between employees, customers, and vendors that help support different process areas. And you layer the rules on top.”
OrangeGrid supports all sized mortgage servicing groups, but credit unions and smaller operations carry distinct challenges. “Those (smaller) groups, possess maybe less risk due to less volume, but higher risk for things they're not used to,” noted Mobraten. “They have seen an upswing in loan origination and refinance during the boom coming back. It is not going to go away. We are all going to have loans. We are all going to have refinances.”
He explained that in the past, many credit unions typically outsourced the mortgage servicing. “They have to start bringing it in-house to increase those margins back by doing it themselves,” said Mobraten. This is where all the high risk comes into play because they are not accustomed to dealing with the exceptions and defaults. Even if they have smaller volumes in comparison to the larger financial institutions and fintech groups, they will have to adapt some kind of technical solution. “Because even though they're going to increase their margin by bringing it in house, they could lose it all plus more if they're outside of compliance with the type of regulations surrounding delinquent accounts,” Mobraten said.
“Historically these financial organizations relied on just adding more staff to that equation, which does not help their margins these days,” said Mobraten. “They have to look to adopt solutions that they can put in a digital environment that will give them the best ROI (return on investment).”
Single Service Solution
OrangeGrid, described Mobraten, enables servicers to use a single solution to conduct all its loss mitigation process and production management needs without having to rely on IT departments for customizations or keep up with ever-changing regulatory requirements from agencies such as the Consumer Financial Protection Bureau. It also creates an ecosystem of convergence for all data from a variety of sources, including many popular legacy systems, used in the servicing of mortgage loans.
“It's just a super complex environment,” said Mobraten, referring to a fragmented data and application situation, as well as exception rules that come up. “Meaning that processes should go from A to Z, but in the world of financial services, particular mortgage services, it does not go from A to Z. It hangs a right, hangs a left, and you have to be able to identify these things and correct the course of action to get back into the path zone. We are going to take analysis and macros and algorithms to create these spreadsheets, give them to our staff, give them to our vendors, to identify the exceptions that they fell out of the, the process arena.”
Mobraten emphasized that industry rules and reports often fall short. “We hope (staff) remembers the rules that we taught them in their head to take action on them. That is the true problem with the reports is they are not actionable in a technical environment. You are now relying on the human being to remember what I am supposed to do when I read this line item. We do not really know until we pull another set of reporting mechanisms and ultimately, this really where we’re going to compile the problem.”
The True Challenge
Mobraten underlined the true challenge really starts with just having the right kind of mindset and thought process. “Obviously it's a gamble, but if you're in the business, you know that this is a cyclical environment.”
Mobraten pointed out most of OrangeGrid’s customers use its mortgage servicing software to replace the legacy method of handling exception management and workflow with OrangeGrid’s application for workflow, but each use it for a different stage of the process. “But ultimately what they are trying to do is, every quarter or every six months, whatever their game plan is, is to bring in another layer, into the environment. They are tackling it where they need their biggest ROI first and then bring in another layer. Basically, consolidating their old legacy ways, we do have some smaller customers that (use OrangeGrid) from beginning to end.”
Mobraten also expects the rise in mortgage interest rates to have an impact. “The mortgage business has always been a supply and demand game. When you have got this high rate of inflated equity that we saw over the last few years, we call that a bubble. I've yet to see a bubble not burst. And when it does burst, it moves into high delinquency rates because supply and demand always starts with rates. It is not about the cost of the home. It is about what can I afford.”
The OrangeGrid CEO maintained that impacted financial organizations still have time to reorganize. “These trends are going to show you the path where you will likely end up. The critical aspect to understand is not to wait until it is there, there are small things you could do to start to help sustain a healthy business.”
“They can look at embracing a solution like ours by identifying they don't have to replace all or any of their systems, we can lay on top of their applications to give them that incremental support in those process areas,” Mobraten said. “They don't have to completely transform their digital environment, but we can add incremental value by laying on top.”