Collector - September 2020 - 21

required to resume payment of their obligations.
The number of consumers experiencing
deteriorating financial circumstances and
making no or irregular payments will grow.
Organizations that haven't invested in portfolio
monitoring and collections capabilities/
readiness will find this particularly problematic
to address. Some of the more rudimentary and
earliest "click here" solutions failed to collect
data regarding the nature of consumer distress,
so opportunities may have been missed to
identify consumers most likely to need extended
forbearance or loan workouts.
Mortgage lenders working through
restructuring and forbearance agreements
will endure unnecessarily high agreement
failures unless they adopt a more rigorous
assessment to identify cash-flow defaulters
versus strategic defaulters-those
consumers who are impinged by cash
flow disruptions but have a commitment
toward resolution, versus those who have
little commitment toward the property/
loan as a result of marginal or no equity in
the property.
Strategic default was a major factor
in the Great Recession due to lending
policies that allowed more than 90% loanto-value terms and equity cash-out deals
that have been highly regulated in the
period since then. Obtaining consumer
income and employment information
will be critical to establishing appropriate
treatment responses for lenders.
Digital communications will continue
to play a significant role as lenders drive
consumers to webpages and consumers
migrate to mobile apps and self-service
portals. Digital communications can also
help lenders reach out to consumers still
in forbearance to obtain more information
about their unique circumstances and
anticipate if furtherance of forbearance or
loan workout is required.
The shortage of trained, seasoned
workout specialists in creditors' collection
departments will present challenges,
and some companies may be hesitant to
outsource to third-party collection agencies
given the decisions required involving writedowns, negotiated settlements and workouts.

COLLECTOR 09.20

Creditors might opt to augment their
staff with contract employees who have
significant workout experience, similar to
the bank specialists hired during the S&L
crisis. This approach will give banks and
lenders the ability to manage their assets and
balance sheets using their own personnel
and be responsible for any impact on writeoffs and net income.
Another option is in technology, with
several companies offering workout
solutions that engage the consumer using
artificial intelligence and supply external
data to allow self-help restructuring and
payment assistance.

WHAT'S THE LONGER-TERM
OUTLOOK?
Going forward, the COVID-19 crisis will
have a prolonged impact on consumers.
While much of the globe shut down
in March and April to combat the
coronavirus, the reopening of global
economies has not been as synchronous,
and it's clear a return to lower levels of
unemployment and disruption will be
more gradual than hoped for at the outset.
What is certain is that digital
communications will be front and center
as consumers become increasingly familiar
and comfortable with it, and companies
that have invested in the technology
to create improvements in collection
servicing and outreach in ways that
consumers prefer will have an advantage.
Training programs aimed at higher-level
workout skills must also be developed and
implemented to fill the gap left after a strong
economy, allowing organizations to manage
more complicated cases of consumers
impacted by COVID-19 and its aftershocks.
Above all, establishing a process that
will help you understand the reason for
consumer delinquency will enable you to
differentiate treatments leading toward
the best shared outcomes for consumers
and lenders alike.
Jeff Bernstein is a senior principal consultant
with FICO Advisors. He can be reached at
jeffreybernstein@fico.com.

1

The number of consumers
experiencing deteriorating
financial circumstances
and making no or irregular
payments is expected to grow.

2

Both creditors and
ARM organizations
must further invest in
digital communications to
manage increased call loads;
collectors will need to be
skilled at renegotiations and
debt relief strategies.

3

Establishing a process
to help you understand
the reason for consumer
delinquency will enable you
to suggest customized, and
often more effective, solutions.
21



Collector - September 2020

Table of Contents for the Digital Edition of Collector - September 2020

Collector - September 2020 - Cover1
Collector - September 2020 - Cover2
Collector - September 2020 - 1
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