Higher Default Rates Increase Need For Default Management Technology

Increases in default and foreclosure rates, especially in the subprime sector, have given a new urgency to risk control and default management - and opened up new opportunities to create technological solutions.

"I think the lending community has been aware of the need to address the default component for quite some time. But the emphasis was always on loan generation and market development," Duke Olrich, chief executive of DRI Management Solutions, told Inside Mortgage Technology.

"However, in the last year or so the default component has gotten a lot more attention and more people are knocking on our door," Olrich added. Based in Newport Beach, CA, DRI Management Solutions offers a suite of integrated default management software that can be used singularly or in association with other systems, and which can be connected to other servicing or accounting programs.

Olrich thinks demand for default management technology will burgeon. "I can’t give you an industry growth rate, but if you just look at the higher rates of foreclosure you get an idea of the demand. Some of the industry people we talk to think this is going to go well into 2008 or even through 2009."

On Feb. 20, DRI Management Solutions introduced several enhancements to its product line, rolling out four new components. A litigation module makes tracking and monitoring properties involved in legal actions easier. A property preservation module can monitor the physical condition of a property to ensure that any necessary repair and maintenance work is performed. A pre-foreclosure module tags and forwards loans meeting user-specified criteria to a financial firm’s foreclosure and loss mitigation departments. The last enhancement is an administrative module that can create an unlimited number of templates for a specific loan, and multiple processors can be assigned.

"These additions to our product line just show that this is a constantly evolving technology market. The industry keeps coming up with additional requirements and applications for the technology," notes DRI’s Olrich.

Other vendors have also developed new products and enhancements to existing products.

In late 2006, DepotPoint, a technology and services provider for the foreclosure market, introduced a Web-based product that centralizes all actions required in managing defaults. "The foreclosure market is projected to greatly increase in the next two years, moving a larger percentage of home loans into a cycle of default and exposing loan originators to additional vulnerability and further risk," said Prakash Kondepudi, DepotPoint’s chief executive officer.

According to DepotPoint, based in Bellevue, WA, its processing tool, known as TrackPoint, is designed to optimize the tracking, recording and management of property-related data, bringing new efficiencies to the foreclosure process. In addition, all the varied state regulations regarding the processing of a foreclosed property are embedded in the tool.

On Feb. 13 DepotPoint introduced a lien monitoring service, which offers lenders a tool for automatically monitoring foreclosures, tax defaults, and bankruptcy filings - all events that can compromise the timely payment of a loan and increase the chance that a lender’s portfolio may suffer financial loss. In addition, the firm enhanced the system’s state regulation compliance tools.

Tavant Technologies, also sees potential in the mortgage technology market. In January the company highlighted the mortgage industry as one of three areas it has targeted for future growth. Risk management is one of the areas Tavant has focused on, and the company is emphasizing development of the Default Management Capabilities product line that it introduced in October 2006.

End-to-End Default Management

Computer Sciences Corp. announced a "strategic agreement" Feb. 21 with eMason Inc. for the integration of eMason’s Clarifire web-based process application with CSC’s Early Resolution collections and loss mitigation fulfillment product. The integrated service will offer the consumer lending industry a default management solution on a common business platform, the companies said. The agreement provides CSC clients using Early Resolution’s default work-out service with direct access to eMason’s Clarifire foreclosure and bankruptcy process automation software.

"By connecting EarlyRespolution and Clarifire, we offer the industry an end-to-end default management solution simultaneously accessible to all parties on a single platform. Attorneys and many other third party default service providers will now have direct access to web-based tools and an automated process that results in greatly expedited response times," said Kevin Schlumpf, managing director of CSC’s EarlyResolution group. The Early Resolution tool was pioneered by FreddieMac.

Equity Depot, an Atlanta-based real estate information firm, has found another niche to fill in default management. On Feb. 21, the company released a program called RealCheck, which allows customers to find historical foreclosure information on properties to help them identify potential fraud and suspicious "flipping" activity.

"Our customers have a tremendous need to instantly check past foreclosure history on owners that have defaulted, or on properties which have been foreclosed on multiple times. We have many instances where the same properties and owners have appeared in our database many times. RealCheck puts the power to check this information at loan origination or during default to track people, properties or the associated history trends," said Mark Sulimirski, product developer.