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 1st. 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.
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.
As we all sit on the edge of our seats, wondering if our new normal is here or if a new variant will send us into another winter of hibernation, there is good news for mortgage servicers, as well as opportunity. This year’s J.D. Power U.S. Primary Mortgage Servicer Satisfaction Study shows that overall customer service satisfaction has actually improved under COVID-19. Do not be perplexed by this seemingly upside-down compliment. Servicers have remained solidly on the frontline, assisting borrowers as they have sought forbearance and other loss mitigation options to ward off pandemic delinquency or foreclosure.
Exhausted by change? Every company, mortgage-based or otherwise, is experiencing a shift in automation as an essential part of business. The timing of this shift, however, may seem untenable as the industry experiences record levels of activity on every front. New point solutions, applications, and big-box add-ons are being introduced into the market at a relentless pace. Each one promises to deliver a groundbreaking experience that is better, faster, and more efficient. The reality is that you often wind up managing too many applications, too many one-offs, too many upgrades, and still wind up with too many manual handoffs and too much risk. It’s time to change up the approach and find an answer to the chaos.
The Consumer Financial Protection Bureau issued its 2020 report on supervisory examination findings at the end of June. Earlier this week, they published an additional report focusing more specifically on 16 large mortgage servicers. Both publications highlight the pandemic’s effect on the servicing industry and the consumers they impact. These reports also spotlight the fact that the CFPB is earnestly focused on helping consumers avoid foreclosure, especially as federal protections expire. So the question becomes, how do mortgage servicers survive and continue to thrive as examinations and performance metrics are used to further scrutinize the performance of this overburdened segment of the industry?
Earlier this year, while most of America anxiously awaited word on additional stimulus checks as President Biden signed the American Rescue Plan Act of 2021, many may have overlooked an even more meaningful allocation of relief funds. The Homeowner Assistance Fund (HAF), which provides up to $9.961 billion to U.S states, including the District of Columbia and Puerto Rico, U.S. territories, tribal entities, and the Department of Hawaiian Homelands, was specifically created to provide relief for U.S. homeowners financially impacted by COVID-19. The objective of the HAF is to make an earnest effort to help homeowners struggling to make mortgage payments avoid ending up in serious default or foreclosure.
The servicing tech landscape is certainly ripe for automation and innovation. Whether your organization is preparing for the next wave of loss mitigation challenges, the sunset of LIBOR, decreasing MSR valuations, millennial homeowner expectations, or all of the above, servicing automation holds the answer to enduring and evolving. You’ve heard this before, but with over a year of pandemic influence, embracing automation is critical to continued success in the servicing realm.
Put “good faith efforts to comply” and extended flexibility in the rearview mirror, the Consumer Financial Protection Bureau (CFPB) kicked off the month with a warning to mortgage servicers…. “Unprepared is Unacceptable”. In the first of two press releases issued during the opening week of April, the CFPB drives home their efforts to ensure servicers are ready to prevent avoidable foreclosures.
Keeping track of which investor wants what during the forbearance, loss mitigation, and loan modification processes has never been an easy activity. Throwing in the COVID-19 pandemic with its massive unemployment numbers and staggering amount of borrowers in need has been enough to make everyone’s head spin. Technology plays a huge role in helping default servicing organizations address forbearance agreement challenges, how bankruptcy affects the proceeds, and the tackling of operational challenges related to new logic and volume, all while mitigating servicer risk.
To say that our world was turned upside down in 2020 would be an understatement. However, as we arrive at the one-year anniversary since the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it is the perfect time to take stock of how far mortgage servicers have come as innovative industry participants. What lessons have we learned as we’ve pressed our organizations to the extremes of their potential? What business practices helped us push through unprecedented volume and velocity, and which impaired our momentum? How has pandemic disruption forever changed the servicing landscape and how we do business?
Have your servicing operations become too comfortable with the monthly guideline extensions for foreclosure, forbearance, and/or deferment? Let’s face it there are a lot of moving parts, with overlays from disaster relief guidance, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the Fair Credit Reporting Act (FCRA), as well as state, local, and investor requirements. Amidst extended moratoriums, Lender Letters, Bulletins, FAQs, and other guidance, there are varied areas of rolling and evolving requirements, including some obvious and some not so obvious guidelines such as:
Suppose you mash up the 300-foot drop in Millennium Force at Cedar Point with the 720-degree, triple, upside-down twist of Outlaw Run at Silver Dollar City and the 149 mph top speed of Formula Rossa in Abu Dhabi. This would give a glimpse into the roller coaster ride servicers experienced in 2020 due to the COVID-19 pandemic. The ride began on March 27, 2020, when The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and ushered in forbearance relief for approximately 4.3 million homeowners. Despite migrating personnel to remote work, mortgage servicers rose to the challenge, and by May 10, 2020, the Mortgage Bankers Association estimated that 4.1 million homeowners had found relief.
With a vaccine in distribution and optimism for what’s to come in 2021, we all need to have our eyes wide open as we continue to navigate the unparalleled circumstances of a pandemic. The first area to watch is definitely delinquency rates. With foreclosures under federal and state moratoriums, coupled with the absence of data on forbearances and other accommodations, mortgage delinquency is more than likely the truest indicator of mortgage payment trends available. Recent headlines and metrics on the state of pandemic delinquency can be misleading given a skewed data perspective, and they will remain this way until the protections offered under the Coronavirus Aid, Relief, and Economic (CARES) Act expire. Currently extended through the end of January, we may easily see these protection deadlines prolonged again.
We can all say that 2020 will end as a year to remember, or forget. The amazing aspect is that we have survived the challenges, no matter how pervasive. The quest that awaits us in the new year is awareness, preparedness, and modernization. We need to look back, learn, look forward, and engage trusted industry partners for this challenge.
The mortgage industry has already broken origination volume records this year, with the Mortgage Bankers Association (MBA) predicting $3.39 trillion originations in total. Next year’s forecasts fall short but still indicate 2021 will rank as number two for origination volume experienced over the past 15 years. With interest rates at historic lows, the industry is grappling with both refinance and purchase business. Even as rates more than likely creep up next year, purchase volume will stay strong with the MBA forecasting that purchase originations will hit $1.59 trillion in 2021.
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