As stated previously, the performance measure of success of default intervention or loss mitigation currently used by VBA is the FATS ratio.
The Study Team reviewed the FATS ratio results for different years and regional offices and assessed the reasonableness and accuracy of such data. VA officials were asked to
identify factors affecting variations over time and across regional offices. The Study Team also examined practices used for FHA default intervention and measures of such
intervention.
Analysis of the FATS Ratio
Table 7-6 provides national summary data for FY 2002 and FY 2003 on successful interventions, foreclosures, and the FATS ratio. The number of foreclosures dropped significantly, from 20,168 in 2002 to 16,084 in 2003. Improvement in the economy, undoubtedly, affected this outcome. The FATS ratio improved from 43 percent to 47
percent as the significant decline in foreclosures outweighed the slight decline in successful interventions. The FATS ratio is the total of successful interventions (SI), refundings (R), voluntary conveyances (VC), and compromises (C), divided by the same total plus foreclosures: FATS ratio = (SI + R + VC + C)/(F+ SI + R + VC + C).
A successful intervention results in the default being cured and the borrower retaining the home. If the loan default cannot be cured, then VA fulfills it guaranty commitment. Different courses of action may be taken to avoid foreclosure and prevent or minimize financial loss, including refunding (VA buys the loan from the lender), voluntary conveyance (VA accepts the voluntary deed from the borrower to avoid foreclosure), and compromise claim (VA pays a claim to the lender to cover the difference between the sale price and loan balance).
Table 7-6. Aggregated FATS Ratios, FY 2002 and FY 20036*
FY 2002 FY 2003
Percentage Change
Number of Successful Interventions 10,564 10,450 -1%
Number of Refunding 2,486 1,266 -51%
Number of Voluntary Conveyance 460 368 -20%
Number of Compromise Claim 1,792 1,599 -11%
Number of Foreclosures 20,168 16,084 -20%
FY FATS ratio 43% 46% 6%
Source: VA LGY data
Figure 7-3 presents a graph of the percent distribution of the different outcomes of defaulted loans for FY 2002 and FY 2003, including successful interventions, refundings, voluntary conveyances, compromise claims, and foreclosures. The percentage of successful interventions increased from 30 to 35 percent between FY 2002 and FY 2003 while the percentage of foreclosures declined from 57 to 54 percent, reflecting possibly the improving economy and better performance of VA’s loan supplemental servicing during this time period. The total percentage of the other outcomes—refunding, voluntary conveyances, and compromise claims—decreased from 13 to 11 percent, also reflecting possibly a better economy and better performance of VA’s loan supplemental servicing.
Aggregation of data from RLCs for both years.
Figure 7-3. Percent Distribution of Outcome of Defaulted Loans
Source: VA LGY data
2002 7% 1% 30% 57% 5% Successful Interventions Foreclosures Compromise Claim Voluntary Conveyance Refunding 2003 1% 4 35% 55% 5% Successful Interventions Foreclosures Compromise Claim Voluntary Conveyance Refunding
FATS data were provided for each of VA’s RLCs or regional offices: Manchester, New Hampshire; Cleveland, Ohio; Roanoke, Virginia; Atlanta, Georgia; St. Petersburg, Florida; San Juan, Puerto Rico; St. Paul, Minnesota; Houston, Texas; Denver, Colorado; Phoenix, Arizona; and Honolulu, Hawaii. Table 7-7 displays the FATS ratios by VA RLCs for FY 1996 through FY 2003 and shows that the ratio varies by RLC and by year. A number of reasons account for this, including but not limited to differences in the health of the various local economies and State foreclosure and lending laws. Differences in State laws, for example, affect the probability of different foreclosure outcomes, particularly in terms of the timing of foreclosures and the occurrence of alternatives to foreclosure. This, in turn, affects the FATS ratio for a given region and year.
Significant improvement in the FATS ratio occurred between 1996 and 2003 for all of the RLCs except for one (Denver). Explanation for the general improvement relates to the consolidation from 45 RLCs to 9 RLCs and 2 Regional Offices (ROs) during this period, because better oversight can be exerted over the smaller number of RLCs. Many new supplemental servicing employees were hired as part of the consolidation. VA officials report that new staff generally require about a 3-year training/experience period to become fully proficient at their job. In addition, renewed emphasis has been placed on the FATS ratio, and the recently implemented cash awards to employees provide an incentive for better performance.
Table 7-7. FATS Ratios for VA Regional Loan Centers, 1996–2003* VA RLC 1996 (%) 1997 (%) 1998 (%) 1999 (%) 2000 (%) 2002 (%) 2003 (%) Average (%) Manchester 39.3 36.7 31.9 31.2 20.3 33.0 41.0 33.3 Cleveland 38.3 40.3 35.0 42.3 35.9 41.0 44.0 39.5 Roanoke 27.9 26.2 19.6 26.8 27.5 51.5 58.0 33.9 Atlanta 30.8 28.3 25.1 25.4 22.3 40.0 44.0 30.8 St. Pete 42.3 39.4 33.2 34.5 30.3 46.5 52.0 32.3 San Juan** 54.5 61.5 58.0 St. Paul 41.9 39.0 26.0 30.4 30.2 48.0 44.0 37.0 Houston 38.9 40.7 42.4 39.4 35.3 36.0 44.5 39.6 Denver 47.7 38.8 37.5 39.6 37.3 38.0 44.0 40.4 Phoenix 38.3 33.5 34.7 32.9 27.5 47.0 52.0 37.9 Honolulu** 39.0 46.5 42.8
*2001 data not available. ** Pre-2002 data not available.
Note that San Juan and Honolulu are Regional Offices, not Regional Loan Centers. Source: VA LGY data
Differences in the conditions of local economies, State laws and regulations, and the level of workload/staffing ratios affect variations in the FATS ratio across RLCs and years.
Workload/staffing ratios are uneven across RLCs, resulting in lower FATS ratios for RLCs with relatively less staff. The Denver RLC, for example, which has relatively fewer
supplemental servicing staff, actually experienced degradation in its FATS ratio between 1996 and 2003.
The FATS ratio is strictly an outcome measure and does not account for inputs used in loan servicing or RLC area-specific factors that may affect performance. VA central office
management team for the loan program is aware of this issue but has no direct control over the allocation of its staffing resources across RLCs. Higher level management staff within VBA make staffing allocation decisions among the RLCs and across the major VBA programs, including Compensation and Pension.