Clarifire Conversations

In today’s digital environment, the number of vendors delivering large platform-based systems remains high.  However, this approach is fast becoming dated as it slows down the ability of the servicer to evolve interoperability, impairs the capacity to integrate various systems, including access to data, and is typically costly and cumbersome to implement.

Disaster risk exposure relative to homeowner’s insurance has become a mounting concern for mortgage servicers as the number of natural disaster events remains high.  Servicers need workable strategies to protect mortgage collateral as they face an increasing number of disaster events toppling the $1 billion mark.  In this escalating disaster environment, mortgage servicers find themselves chasing insurance coverage options to help minimize their risk exposure.

Bank of America recently released the 2019 Fall Homebuyer Insights Report, which finds that homeowners value not only the financial equity that comes with homeownership but also the social and emotional benefits. Conveying several aspects of well-being that have been expanded with homeownership, including hobbies, interests, and family dynamics, information gathered from new homebuyers acknowledged that owning a home is considered an important element of one’s lifestyle. Affirmation of positive homeownership sentiments indicates that borrowers have moved beyond the financial crisis attitude whereby abandoning one’s home was considered an acceptable response to default. 

Recently the Treasury Department and the Department of Housing and Urban Development (HUD) published their long-awaited plans for housing finance reform. While the plans are most recognized for their proposed changes to government-sponsored enterprises (GSEs), they also introduce suggestions for amending Federal Housing Administration (FHA) programs and guidelines, including specific guidance on default servicing. 

Nearly half of mortgage servicers indicated that they felt the western region of the US was most likely to see an increase in distressed inventory for the latter half of the year. This was one of the key findings from Auction.com’s 2019 Disposition Summit Client Survey Report. 

The 2019 hurricane season is already off to a troubling start with Hurricane Dorian having caused an estimated $1.5 billion to $3 billion in insurance losses across the Caribbean. Even tropical storm Barry is estimated to have caused as much as $600 million in damage in the Southeast, including Alabama, Florida, and Mississippi. Last month, the National Oceanic and Atmosphere Administration (NOAA) updated its predictions for the current hurricane season, increasing expectations for an “above-normal” season.

New Jersey recently joined a handful of states seeking to increase regulation and oversight of nonbank mortgage servicers. The Mortgage Servicers Licensing Act went into effect just over a month ago and created new requirements for nonbank servicers doing business in the state.

As digital transformation evolves, agencies continue to migrate to the cloud to modernize operations, keep up with technological advances, and gain efficiencies.  Choosing the wrong vendor solution results in hidden costs and time delays.  Selecting the vendor that provides the most short-term gain balanced with long-term efficiencies is no small task.

In addition to federal regulations enforced by government agencies, including the Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC), mortgage servicers are subject to state regulations within the states they conduct business. And in the case of New York, those regulations can be as demanding, if not more so, than federal requirements. Even servicers that don’t operate in New York must keep a close eye on proposed changes to state requirements that have the potential to impact or increase today’s burden of compliance.

Although foreclosure rates are frequently touted to be at historic lows, servicers must still prepare for quarterly upticks and unexpected market changes that can quickly drive up foreclosures episodically. Increases in delinquency and foreclosure rates are in various quarterly reports, in numerous geographic pockets, and more frequently in areas where natural disasters occur.  Despite improved economic factors, the industry still needs to consider interest rate volatility, stagnating housing starts, latent home appreciation, and rising consumer debt.  Let’s not leave out talk of a forthcoming recession.  Last but not least, our industry has changed since we last saw serious delinquency risk, making awareness and readiness more important than ever.

The past decade has been a challenging one for mortgage servicers, with countless time and resources spent on high volumes of delinquencies, rigorous loss mitigation standards, and growing investor requirements. Looking ahead to the next ten years, stakeholders are asking if the old servicing model still makes sense for a transformed industry.

In May, we shared with you a sneak peek of what to expect at this year’s Ginnie Mae Summit.  With promises of an “in-depth, top-to-bottom perspective on Ginnie Mae’s business,” it certainly did not disappoint.  If you missed this exciting industry event, we’ve got you covered.  From government lending policy changes to Ginnie 2020, here’s what you need to know.

It appears that the Federal Housing Administration (FHA) will finally get the technology modernization it deserves.  This year Congress approved $20 million in funding for FHA’s technology infrastructure, coinciding with several initiatives to retool systems that are decades old. This funding acknowledgment will support significantly enhanced technological capabilities that will benefit the industry as a whole, as well as individual lenders and servicers.

The Consumer Financial Protection Bureau recently published its 18^th Edition of Supervisory Highlights, reviewing supervisory actions taken in the latter half of 2018.  The Supervisory Highlights outline four sectors that received significant supervisory attention.  Mortgage servicing once again made the list, alongside automobile loan servicing, deposits, and remittances. The findings related to mortgage servicing violations reiterate the need for up-to-date policies and procedures, as well as mechanisms to ensure adherence.

It has been a difficult year for many rural American families, particularly those that farm. From unprecedented flooding, tornadoes, and tariffs, the “perfect storm” of challenges could have a historical impact on areas of need. During this time, many farmers and homeowners are likely to turn to the United States Department of Agriculture (USDA) and its Rural Housing Service (RHS) for support. Mortgage servicers have a big part to play in preparing and managing an influx of homeowners seeking disaster relief and loss mitigation options.

New research suggests a growing number of service members are opting for Department of Veterans Affairs (VA) mortgage programs over other alternatives. The Consumer Financial Protection Bureau’s (CFPB) Quarterly Consumer Credit Trends report for the first quarter of 2019 dug into first-time service member home buying trends.  The results should remind mortgage servicers of the need to stay on top of VA-specific policy requirements, especially the VA’s expanding disaster relief loss mitigation requirements.

The Consumer Financial Protection Bureau (CFPB) recently published an assessment of the significant mortgage servicing regulatory overhaul that went into effect in January 2014. To assist borrowers in avoiding foreclosure, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) required the consumer watchdog to expand the scope of regulatory and supervisory oversight of mortgage servicing under the Real Estate Settlement Procedures Act (RESPA). The legislation also required the CFPB to conduct an assessment of major rulemakings within five years of the effective date – bringing us to 2019. 

As part of its ongoing innovation initiative, the Office of the Comptroller of the Currency (OCC) has announced its own Innovation Pilot Program. The pilot will complement several ongoing programs and efforts, including the creation of the new Office of Innovation, “innovation hours” programs at various offices, and the availability of bank charters to fintech companies. Moving another step forward, the innovation pilot will establish a “sandbox” environment where financial institutions can test innovative products and services in a controlled environment.

A lot of industry attention is currently focused on the finish line for the digitizing of the mortgage business, with mortgage lenders, servicers, and vendors in countdown mode.  In this environment, it’s important not to lose sight of the risks that lay along the route. Additionally, digitizing the mortgage lifecycle only represents a portion of the evolving automated mortgage process, which encompasses expanding data and privacy requirements, the increase of mobile applications, and much more. 

Following this year’s MBA National Secondary Marketing Conference and Expo, the mortgage industry is looking forward to Ginnie Mae’s 2019 Summit. Subject to registration approval, lenders, servicers, investors, document custodians, policymakers, and members of Congress are already set to attend this annual event.  Taking place in Washington, DC from June 13 through June 14, 2019, this year’s summit promises an “in-depth, top-to-bottom perspective on Ginnie Mae’s business.” While there will certainly be a lot of developments to come out of the conference, we have a sneak peek of what to expect.

The mortgage industry’s latest buzz word is “digital mortgage”, a novel term for the ongoing pursuit to remove paper from the process.  However, this endeavor encompasses mobile apps, eClosings, data integration, blockchain, and other areas that are all aligned with mortgage origination.  Once a mortgage loan is closed, the data is passed onto the servicer, where it is far from digitized.   

In a few weeks, key housing finance and servicing stakeholders will gather in New York City to discuss what lies ahead for capital markets, government lending, and mortgage servicing. Clarifire will attend the Mortgage Bankers Association’s Secondary Marketing Conference and Expo on May 19 through May 22, 2019, to stay on top of industry hot topics, including mortgage servicing rights (MSR) liquidity, the future of the secondary market, government lending issues, and the digitization of mortgage lending.

With nearly a dozen different disaster relief specific programs and constantly changing foreclosure moratoriums, mortgage servicers shouldn’t need another reason to take disaster preparedness seriously.  If you’re still trying to catch up to the pack in deploying technology-enabled workflow and workout solutions to manage the varied rules and requirements tied to disaster relief, Ginnie Mae is making a case for proactively tackling the effects of natural disasters that you can leverage.

The industry continues to hunger for technology to improve workflow, as well as streamline and automate operational efficiencies. While these investments promise a competitive edge in a challenging environment with tight margins, other factors, outside of a servicer’s control could also have a big impact on business profitability.  

With record low profitability in the mortgage space, lenders, servicers, investors and government agencies alike need to aim for maximum resource efficiency. This approach extends to your technology and software strategy as well. When margins are stretched, and manual operations no longer cut it, industry participants must ask themselves whether it makes sense to build or buy their technology solutions.