Clarifire Conversations

Following up on our last blog, ‘Servicing Answers to High Interest Rate Pressures,’ it is crucial that mortgage servicers do not succumb to the ongoing news of tumbling interest rates and the possibility of multiple Federal Reserve rate cuts on the horizon. With inflation reports calming, the average 30-year mortgage rate dropped under 6.50 percent; however, this does not change the extensive gap between today’s rate and the historically low interest rates that are tied to the majority of mortgage loans currently being serviced. As mortgage delinquency rates appear to be teetering on a precipice, industry agencies are gearing up for a change in loss mitigation strategy. Last month, Clarifire delved into the new FHA Payment Supplement Program. This month, we’re taking a look at the Department of Veterans Affairs (VA) recently announced changes designed to assist veterans at risk of foreclosure.

Will higher interest rates put your delinquent borrowers in jeopardy? Pushed to new lows on the cusp of the financial crisis, the average annual interest rate for mortgages stayed under five percent for 12 years, lasting from 2010 until 2022, when the average annual rate climbed to 5.53 percent. Rising above seven percent in October of 2022 and then above eight percent in October of 2023, where do we sit today? Amidst mixed predictions for the continued direction of interest rates, Bankrate clocked the average interest rate for April of 2024 at 7.05 percent. With the vast majority of homeowners holding mortgages with an interest rate well below this mark, are mortgage servicers ready to help the current borrower who faces default? 

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to modernize mortgage default servicing processes by inviting more automation into the process and moving away from outdated face-to-face requirements.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.

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.

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.

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.

The mortgage industry, financial services, and FinTech arenas have all received a boost from technology during struggles to provide relief under COVID-19. Whether it be a result of the immediacy and severity of borrower needs, the scale and velocity of transactional requests, or depth of data and digitization capabilities being sought, the pandemic environment has pushed corporations to reevaluate technical innovation from every direction. As this erratic year comes to a close, it creates a very real opportunity to reinvent how you do business by maximizing the progress you’ve already made. Now you can learn how to tap into automation that can free up your organization permanently.