Innovative Servicing Technology: Smart Enough to Sustain Homeownership Gains?

Mr. Hornburg is the executive director of the Research Institute for Housing America, Arlington, Va. His viewpoint is a synthesis of ideas that emerged from a conference earlier this year.

The 1990's revolution in underwriting, product development and outreach for single-family residential homeownership has helped to produce significant gains in lending to traditionally underserved borrowers. Between 1994 and 2000, minority households accounted for two-fifths of the net gain in homeowners. Furthermore, loans to low-income homebuyers shot up 97% between 1993 and 1999.

Mortgage-market innovations, however, cannot change the fact that owning a home is an expensive proposition that stretches the savings and budgets of poorer families. Last year, one-sixth of all borrowers put down 5% or less on their mortgage. This group probably has a disproportionate number of low-income borrowers, given that affordable lending products are often highly leveraged. National statistics show that many low-income families pay more than half their income towards their mortgages. More work remains to close the racial, ethnic and income homeownership gaps, but these facts raise a new challenge for lenders: how can the gains of the 1990s be preserved, especially in light of a softer economy?

The Research Institute for Housing America addressed this important question as part of our annual Conference on Housing Opportunity, held in April. While servicing receives little attention from the media or academics, technological progress in this industry may well represent the best chance for this new generation of homeowners in their homes. While axiomatic in the industry that early intervention was critically important to preventing unnecessary foreclosures, servicers were unable to distinguish more seriously delinquent borrowers from those with more transitory or curable problems. With the sheer numbers involved and uncertain outcomes with various resolution efforts, "one size fits all" strategies dominated with a relatively narrow set of workout options.

Recent strides in servicing technology have opened new opportunities to intervene at the right time and with the right solution, with the various classes of borrowers late in their payments. In recent years, servicers have increasingly turned to two classes of servicing software that can help sustain the gains in homeownership rates among traditionally underserved ...