Optimizing payment options a must in tough mortgage market
With mortgage loan delinquencies and foreclosures reaching record highs - and as consumers are forced by the worsening economy to prioritize and sequence the payment of monthly bills -- adding easier, faster and more convenient mortgage payment options increase the chances mortgage bills will be paid.
Measuring the market: Challenging times
The convergence of declining home values, rising unemployment and a weakening economy has created a record number of delinquent mortgage payments and foreclosures.
- 16% of U.S. homeowners owe more on their homes than the homes are worth, a number likely to increase, according to a recent article in The Wall Street Journal.
- During third quarter of last year the number of delinquent loans increased across all loan categories - prime, Alt-A and subprime, according to the Joint Mortgage Metrics Report for Third Quarter 2008 issued by OCC/OTS.
- This same OCC/OTS report states that banks and thrifts have increased the number of newly initiated retention actions - loan modifications and payment plans - by 13% from second quarter to third quarter 2008.
Measuring the market: Shifting payment trends
With all the changes taking place in the economy, it is not surpising that consumers are adjusting how and when they pay their bills. According to the most recent Western Union Money Mindset Survey:
- 20% are paying bills late.
- 31% are waiting longer to submit payments, delaying paying their bills as long as possible before incurring late fees.
- Consumers paid 2.02 mortgage bills late in the last six months, compared to 1.8 primary, store-branded or other major credit card bills.
The Western Union survey also found that in just the last six months, consumer bill paying behavior has continued to shift:
- 47% are paying more bills online
- 40% prioritize which bills get paid first
- 31% are making only the minimum monthly payment more often
Mortgage servicers need to be providing more reliable, fast and convenient payment options so that customers can customize their monthly payments to fit their needs. As convenience and flexibility increase, so does the likelihood of receiving that monthly mortgage payment.
Five ways to add flexibility for customers, boost payments
Leading mortgage servicers are responding to these trends by adding convenient and flexible payment methods. Here are four bill payment methods that have become increasingly popular with consumers:
1. Electronic Bill Payment
According to the 2007 Federal Reserve Payments Study, electronic payments have increased at an annual rate of 12.4% since 2003 and now exceed bill payments made by paper checks. Electronic bill payment offers convenience and flexibility, allowing customers to manage their monthly payments whenever and wherever they want with same-day and next-day payment options.
For mortgage servicers, electronic bill payment can reduce costs and improve the customer experience. There is increasing demand for mortgage servicers to provide interactive, user-friendly Web sites for customers to manage their payments. A variety of online features can encourage bill payment, such as prominently featuring "pay online" visual cues and links.
2. Interactive Voice Response
Interactive Voice Response (IVR) enables billers to send automated messages to customers related to account activity and overdue bills. IVR can send reminder messages to those who may have forgotten to make payments. In addition, it allows customers to make payments using only the phone touchpad. A customer who needs more information or who wants to speak with a live representative is quickly routed to the right place the first time, reducing the frustration of multiple customer service transfers.
For mortgage servicers, IVR reduces staffing and improves call center efficiency, while providing an immediate channel for customers to make payments. IVR solutions reduce overall response time and increase customer options for self-service - a win for customers and servicers.
3. Recurring Payments
Recurring payment options offer customers the convenience of setting up automatic, monthly mortgage payments. The customized, recurring payments reduce the chance of transaction errors and can be timed to reflect automatic payroll deposits. Mortgage servicers can even offer an equity accelerator that allows customers to set up bi-monthly mortgage payments according to their payment cycle. Increasing the number of payments per year accelerates payment of a customer's total mortgage.
For mortgage servicers, customized payment options:
- offer predictability,
- help manage delinquent borrowers, and
- increase the likelihood of receiving payments on time.
4. Email Bill Presentment and Payment
Email bill presentment and payment (EBPP) lets mortgage servicers email customized billing information, including delinquency notices, to customers. Customers receive a personalized bill with a secure link to make a one-click monthly payment. The most immediate convenience for a customer is 24-hour account access and the ability to make payments instantly. Customers can also opt-out of paperless statements and other documents to streamline their bill payments.
For mortgage servicers, EBPP positions a company for what will soon become the future of bill payments. Analysis by Forrester Research estimates that by 2010, the number of EBPP users will grow by 75% to roughly 47 million households. E-bill presentment and payment also allows mortgage servicers to "go green" by eliminating paper waste.
Look for New, Innovative Payment Strategies to Hit Market
In response to these unusual economic times, the payments industry is developing new products with new features to help mortgage servicers and their customer develop successful workout plans. The challenge to stand out in the competitive mortgage environment is nothing new. But today's volatile and unpredictable economy puts increased pressure on mortgage service providers to transform and perform. Offering a full-breadth of payment strategies will strengthen relationships with customers, build loyalty, and, most importantly, increase the likelihood of getting paid.