The options
Forbearance, repayment plans, payment deferrals and loan modifications keep the borrower in the home, while a short sale or deed in lieu of foreclosure ends the loan at a smaller loss. Which options a servicer may offer depends on who owns or insures the loan, such as Fannie Mae, Freddie Mac or the FHA.
The rules
Regulation X requires most servicers to contact delinquent borrowers early about their options and to acknowledge an application within 5 business days, saying what is missing. A complete application must be evaluated within 30 days, and starting or continuing a foreclosure is limited while one is pending.
Where the work is
Each application's pay stubs, bank statements, tax returns and hardship letter must be checked for completeness, chased when missing and assembled for an underwriter within the deadlines. Volumes spike in downturns and after natural disasters, when servicers have the least spare capacity.
Where automation helps
Automation checks each application against the investor's requirements, drafts the letter listing what is missing and assembles the file for the underwriter, tracking every deadline. The choice of option stays with the servicer's staff, under the investor's guidelines.