Banks can work with borrowers, help them avoid foreclosure and remain profitable.
That's a lesson large lenders should learn from Webster Financial Corp., a regional bank based in Waterbury, Conn. The bank, which services $8 billion in mortgages and home-equity loans, has been able to prevent foreclosures, for the most part, by helping borrowers and providing them with good customer service.
According to a story published in The Wall Street Journal this week, the lender has taken a proactive approach to loan modifications and has profited from doing so.
The lender offers struggling borrowers a chance to extend loan terms and reduce interest on mortgages that are owned by the bank, the article reports. While restructuring the loan, the bank waives late fees, penalties and unpaid interest. Most servicers simply add those costs to the balance of the loan. About 80 percent of the modifications started by Webster are approved. Big banks have long been criticized for putting borrowers on trial modification plans, requiring them to make payments for several months and later telling the borrowers they don't qualify for a permanent modification.
Webster has completed about 1,184 modifications. Of the loans reworked in 2010, less than 10 percent became delinquent again.
The lender's success in preventing foreclosures is largely attributed to well-prepared staff.
The WSJ says most of the modification specialists at the bank have been on the job since 2008. The bank was "ahead of the industry" in creating a single point of contact for financially trouble borrowers, according to the story. Also, Webster has a group of loan modification specialists who get paid bonuses that are based partially on the number of modifications completed.
Granted, it's much easier to deal with an $8 billion portfolio than it is for large banks to handle portfolios worth trillions. Plus, Webster owns 75 percent of the loans it services, which makes it easier for the bank to make its own decisions because it doesn't need to follow investors' guidelines. Large lenders often say they don't have much flexibility to modify loans that they service because they don't own most of the loans.
Still, lenders and services should take Webster as an example and make an effort to understand that if they train their staff appropriately and try to work with borrowers, they can avoid losses and help solve this foreclosure crisis.
It's not like Webster is giving away money or being a Good Samaritan. The bank is simply making the effort to help keep borrowers current on their mortgage. It's a wise business approach.
Why can't others do the same?
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