Clarifire Conversations

The Q3 2023 U.S. Foreclosure Market Report recently published by ATTOM Data Solutions reveals what lies ahead for mortgage servicers. Illustrating an increase in foreclosure activity that has continued to escalate since the lapse of the government’s foreclosure moratorium, we are quickly finding ourselves back where we started prior to the pandemic.  Before you think this is no big deal… let’s look at what’s happening, why this surge in activity is different, and what you should be doing to stave off disruption.

As you prepare to head out to this year’s MBA Annual Convention and Expo, take a moment to reexamine your approach to technology innovation. Stop waiting, now is the time to implement change capabilities into your mortgage servicing operation. Don’t you want it all? In today’s fast-paced mortgage environment where servicers remain under immense pressure to streamline processes, cut costs, enhance customer engagement, and move nimbly all at that same time, some servicers are still building their own software and struggling to keep up. We’ve heard this many time before, yet still revert to manual processes and added labor when under pressure, an approach that is simply no longer sustainable in this dynamic servicing ecosystem. To thrive and compete in the mortgage industry, servicers need to automate change with smart logic that leverages modern process components accessible throughout your organization and accelerates trusted, proven innovation.

Natural disasters resulting from hurricanes, floods, wildfires, and earthquakes can strike at any moment, leaving behind a trail of destruction and devastation. In the last two months alone, unsuspecting homeowners have contended with the aftermath of Hurricane Idalia and the ravages of the Maui wildfire. Access to relief becomes a real struggle under this duress, compounded this year by the Federal Emergency Management Agency’s critical funding shortfall. Under such trying circumstances, homeowners don’t know where to turn and often rely on their mortgage servicer for answers to questions on financial relief to help recover and rebuild their lives. Are you prepared to respond to their needs?

The Federal Housing Administration (FHA) is looking to modernize mortgage default servicing processes by inviting more automation into the process and moving away from outdated face-to-face requirements. This illustrates another industry progression that has grown out of COVID-19 pandemic guidelines. From a modernization perspective, the Department of Housing and Urban Development introduced the corresponding proposed rule “to better align with advances in electronic communication technology and mortgagor engagement preferences.” The goal is to allow and encourage servicers to use a number of alternatives to face-to-face meetings and expand these revised meeting requirements to all borrowers in default.

The impact of the COVID-19 pandemic on mortgage servicers and homeowners is not over. As agencies and industry stakeholders evaluate the residual effect on homeowners, the question becomes, did the industry help them, and where could we have done a better job? The Mortgage Bankers Association (MBA) recently defended the efforts of mortgage servicers in response to concerns published by the U.S. Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG). The MBA highlights how mortgage servicers were diligent in their efforts to help struggling homeowners, pointing to the numerous program changes and scaling to address record-breaking volume as underlying obstacles for servicers throughout the pandemic. However, during this period of lookback, it becomes clear that despite best efforts, servicers need to ensure readiness for future industry disruption, whether it comes from natural disaster, pandemic reverberation, economic calamity, or other sources. Are you ready? 

In today’s technologically advanced world, artificial intelligence is rapidly evolving and emerging through the modernization and adoption of advances in business process automation. The opportunities and availability are expanding exponentially, with questions around readiness simultaneously compounding. The incorporation of AI promises to significantly reduce workload, but how and where do you manage the introduction of these capabilities into existing operational and systems infrastructure? As you can imagine, the actual adoption of AI can be quite complex and, in a worst-case scenario, can create layered risk.

The Consumer Financial Protection Bureau’s updated mortgage servicing examination procedures pull from lessons learned since their last update in 2016, with a strong emphasis on exam findings from the COVID-19 pandemic. For mortgage servicers, new agency procedures can be daunting. The updates published on January 18, 2023, were issued as a resource and have been incorporated into the CFPB’s 1,812-page Supervision and Examination Manual. This is the manual that CFPB examiners will refer to during their next visit to your office. Understanding these changes and their impact is paramount. No pressure, but these updates need to be identified and incorporated into your processes to ensure your next CFPB exam goes well. Clarifire is here to help you explore some of the latest changes outlined by the CFPB and, more importantly, help you incorporate updates into your operational business processes.

Piggy-backing payment deferral success from the pandemic, the Federal Housing Finance Agency (FHFA) just announced that beginning July 1, 2023, Fannie Mae and Freddie Mac can offer borrowers under financial duress, a six-month reprieve through payment deferral. As usual, there are nuances that accompany eligibility, but the benefit is that borrowers can continue to make the same monthly mortgage payment while deferring past due amounts to the end of the loan. Good news for servicers and homeowners alike as servicers will be able to access this program by way of Fannie Mae and Freddie Mac’s standard loss mitigation toolkits.

Are you suffering from regulatory fatigue? Has managing the latest default triggers become arduous? Whether from post-pandemic, pre-recession, or natural disaster, unexpected default strikes erratically and vengefully. In response, the regulatory burden doesn’t stop, even in a low-to-moderate delinquency environment. A recent Wolters Kluwer study found that lender regulatory anxiety is on the rise, with close to 70 percent of their respondents expressing concern in this area. This is not likely to ease as we continue to be in the center of disruption, currently combatting increasing MSR sales, rising interest rates, the sunset of LIBOR, the spotlight on fair lending, and margin compression. This list changes but the need for a strategic defense does not, so what’s your plan to minimize regulatory anxiety?

Or are you stuck by the side of the road as others pass by? It’s time to stop doing the same thing… and getting the same results. The obstacles that face mortgage servicers continue to ebb and flow into 2023 with rising interest rates, increasing MSR sales, and worries of delinquency as inflation and unemployment numbers climb. Servicers can expect to grapple with the onslaught of last year’s originations, tackling loss mitigation as lack of affordability meets recession, including impaired working capital and profitability. Although dealing with a roller coaster of hurdles is not new for mortgage servicing, how we overcome obstacles is different. The question remains, are you stuck in the past?

Regulatory and rulemaking actions were just released for the Consumer Financial Protection Bureau under the Unified Agenda of Regulatory and Deregulatory Actions for Fall 2022. It’s worth noting that six of the ten rulemaking topics assigned to the CFPB are new. It’s also significant that the Bureau has introduced rulemaking specific to nonbanks, along with deep dives into protecting consumers from credit reporting agencies, flawed home valuations, fees charged by depositories, and other possible discriminatory concerns.

When was the last time you reviewed your borrower communication practices? As technology options continue to expand, so follows oversight. The Telephone Consumer Protection Act (TCPA) of 1991, created to address increasing telemarketing practices and their impact on consumers, has grown and continues to evolve on the heels of innovation. Make sure you’re starting the new year with real-time engagement and compliant communication with borrowers.

Don’t be deluded by ongoing reports of decreasing delinquency and foreclosure. As is often the case, it depends on which numbers you’re watching. Foreclosure starts continue to increase, along with early-stage delinquencies. You can make a direct impact on foreclosure avoidance with modern self-serve capabilities that assist your borrowers in understanding their options before they become seriously delinquent. Servicers need a preventative plan now – not later – to manage a servicing landscape that is filled with potential landmines.

What does the CFPB’s recent initiative to curate mortgage products and assist homeowners have to do with mortgage servicing? More than you think. Part of a broader initiative, the Consumer Financial Protection Bureau is specifically looking for “public input on ways to support automatic short-term and long-term loss mitigation assistance for homeowners who experience financial disruption.” The mortgage market sits at an unusual precipice, teetering between historic highs and lows in every area, from origination to loss mitigation and foreclosure. Yet, what makes this season even more nuanced, is the pandemic impact that has propelled our industry forward, finally forcing us into the digital age. So now, before taking a pause, the CFPB has made the timely decision to capture industry information that could assist us in driving this momentum in automation and accelerating it.

What’s next on the mortgage horizon? Lenders are feeling the pinch as interest rates make an uphill trek. On a broader scale, foreclosure activity has now surpassed pre-pandemic levels and continues to inch upward as average home equity has reached a record high. This is not doom and gloom, but certainly signals transformation is soon to come. Preparing for this next influx of change is going to be a challenge, especially for servicers, who will be impacted by cost-cutting measures as rising interest rates begin to affect the entire mortgage operation.

The industry is migrating from forbearance to foreclosure, and mortgage servicers are seeing another change in the makeup of their default servicing portfolios. Forbearance volume is plateauing as the number of loans entering forbearance more closely parallels the volume of forbearance exits. At the same time servicers are becoming anxious as foreclosure activities, from filings to auctions, increase month over month. This type of continued volatility in delinquency activity, whether it’s a change to overall volume, delinquency reasons, relief options, or regulatory requirements, creates severe risk for servicers.

Have you seen the latest foreclosure stats? The picture they paint isn’t a pretty one. The June 2022 U.S. Foreclosure Market Report shows an increase of 219 percent for foreclosure starts over the past six months! Other foreclosure activities, including filings, default notices, auctions, and repossessions have increased by 153 percent compared to last year. We are fast approaching pre-COVID foreclosure levels. Although you may remember those numbers as industry lows, this is not the same economic or interest rate environment. Many consumers are only now beginning to recover from pandemic impact, but rising inflation is making it more and more difficult to transition to normalcy.

Not all servicers are alike, whether it’s size, portfolio composition, delinquency rates, or other criteria. Despite these disparities, the CFPB is determined to prioritize their oversight of mortgage servicers in an ongoing effort to identify and minimize risk for borrowers. Based on reported data and complaints, they’ve placed a strong emphasis on proper management of forbearance exits and the loss mitigation process. Their most recent response metrics report highlights the CFPB’s responsiveness through efforts to issue rulings, temporary safeguards, joint agency statements, and tightened enforcement. The endgame is to ensure industry servicers are appropriately responsive to homeowners, especially looking back on the pandemic and the ongoing recovery.

Correction, the title should read 19 storms are coming. At least that’s the prediction released last month by Colorado State University. The Atlantic hurricane season officially starts on June 1^st. Homeowners are being urged to prepare for a more than the normal number of hurricanes making landfall, as well as the possibility of another record-breaking year overall. Just as homeowners in potential strike areas make their annual preparations for the possible storms, mortgage servicers should also take the time now to ensure preparedness for escalating disaster relief measures before they are needed.

Nearly 1 in 5 healthcare workers have quit their jobs during the pandemic, with nursing being hit hardest. As evidenced in the Morning Consult Study, it is validated that nurses are burnt out and suffering from emotional and physical fatigue, and it is only getting worse. But we don’t need statistics to prove that. We are in the third year of a pandemic, and we all feel it. Quality, personalized communication between nursing staff and administration has NEVER been as important as it is now. We need to lean on innovative technologies that connect caregivers to patients and processes to administration. This is not only to provide visibility to their needs but also to streamline and automate their administrative tasks, freeing them up for focused clinical efforts. Make their lives easier and a kinder way to get their work done.  

We’ve just passed the two-year anniversary of COVID-19 foreclosure moratoria and are quickly rounding the corner on the first quarter of 2022. Where does this leave mortgage servicers as the industry wrestles with rising foreclosure filings amidst ongoing volatility in regulation, the economy, and technology? Above all, mortgage servicers should not be taking a pause. Despite receding delinquency and forbearance percentages, foreclosure activities are on the rise, which will more than likely precipitate more regulatory change, and may easily worsen under current economic factors. Given the circumstances, the most important tactic this year may be staving off uncertainty.

The latest numbers reported by the Mortgage Bankers Association illustrate the volatility that remains in forbearance volume for servicers. As of December 31, 2021, an estimated 705,000 homeowners were in forbearance plans. This number increased in January as the number of new forbearance plans hit a three-month high. However, this trend appears to have reversed itself as the overall number of forbearance plans continues to decrease along with borrowers exiting plans. Of the borrowers remaining in forbearance, 63.1 percent are currently in an extension phase. Now the concern becomes how difficult will it be to transition these remaining borrowers to reinstatement or other permanent workout solution.

Are you ready to put 2021 behind you? Mortgage servicers continue to try to keep up as their segment of the business is inundated by pandemic influence, shifting regulation, and industry digitization. Each of these areas can, and has, impeded a servicers’ ability to operate under the pressures of record-breaking volume, forcing the industry to lean toward a defensive or reactionary approach to business. It’s time to call on your best offensive strategies and accelerate into the New Year.

If you didn’t previously see the Federal Housing Administration’s (FHA) solicitation for feedback on handbook updates, the deadline for review has been extended to December 27, 2021. Notably, FHA is updating Appendix 8.0 – FHA Defect Taxonomy for Servicing Loan Reviews. The purpose of these updates is to create solid defect taxonomy classifications, that support FHA’s loss mitigation efforts to assist borrowers who are struggling to make payments. Secondarily, the FHA hopes to create mortgagee transparency into FHA servicing loan reviews, particularly in terms of accountability and loan-level compliance.

Servicing institutions are well aware of the need to stay out in front of agency scrutiny, examinations, and of course consent orders. But what happens as your focus is eroded under the pressures of record-level volume and a roller coaster of regulation? There has been a legitimate lack of time and resources for mortgage servicers, as well as latency in technology, and not to be overlooked…. the pandemic impact. Where does this leave your organization as you plan for 2022? As the industry prepares to close out another year filled with unimaginable obstacles and hurdles, there is a real opportunity to reinvent your approach to business by leveraging successes and tapping into automation that effectively propels your organization into the future.