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Post-Moratorium Conditions and Concerns

Editor's note: This story originally appeared in the January edition of DS News, available here

In the effort to make our way through the impact of an unprecedented pandemic, every industry in our country has made necessary adjustments to a very difficult period. One of the necessary adjustments in the mortgage servicing space came in the form of government moratoriums on enforcement of loans.

Mortgage servicers and the law firms that represent them have worked together since the first quarter of 2020 to adjust operations in conformity to the moratoriums, and the default sector of mortgage servicing has adapted to the moratorium requirements. As the country comes together to stem the tide of the COVID-19 pandemic, together with the positive news regarding a vaccine, there is reason to believe that we are at the threshold of seeing a turn in the right direction. This
should lead to normalization and re-opening of businesses, drops in unemployment, and borrowers re-entering the workforce.

One of the pandemic’s realities is that the framework of policies and procedures implemented and followed by each participant involved in mortgage servicing will need to be modified to support a very different postmoratorium environment. The impact will begin with servicing and will be felt throughout the enforcement process.

Loss mitigation requests are expected to increase exponentially. Servicers have been adjusting their staffing, operations, and technology, all of which will continue to adjust as needs arise. It is reasonable to anticipate a surge in loss mitigation when the demand process commences and legal filings begin.

Communicating clear expectations between servicers and their law firms will be essential. This should include communicating servicer policies related to loss mitigation.

As the moratoriums expire and the need to enforce defaulted loans recommences, law firms will be facing two independent challenges. The first will involve restarting the files that were abated at the inception of the moratoriums. The second will involve adjusting to the potential foreclosure volume that may be disproportionately increased by the pandemic’s impact.

Restarting: With reference to restarting, staffing considerations will be required. Law firms that support the mortgage servicing industry made significant adjustments in response to the moratoriums. Those adjustments included furloughs and layoffs of employees. The timing and reinstatement of employees will have an impact. Identifying employees who may have found alternative employment and are not available to return will result in the need to hire new staff and
attorneys. There will be a training and learning curve that will impact productivity as the foreclosure process commences.

Increased volume: With reference to the potential of increased foreclosure volume, servicers and law firms will need to adjust the number of employees required to manage the increased volume properly. The reality associated with this challenge ties directly to onboarding and training staff and attorneys. This challenge will be magnified by the uncertainty of volume and the timing of notification of moratorium expirations. As each of the prior moratorium deadlines approached throughout 2020, extensions were announced within a brief period of the published deadline.

Developing a communication policy that results in servicers and law firms having adequate notice will serve all parties in making the necessary adjustments to meet investor expectations.

The industry will be challenged to meet investor guidelines related to timeline expectations. Servicers and law firms have well-established policies and practices designed to support foreclosure proceedings within investor guidelines. The pandemic and related moratoriums will change pre-pandemic expectations. Those changes will require servicers and law firms to adjust their operating
models to support the activity shift. Investors and servicers should consider temporarily adjusting timeline expectations to meet the reality of the operational changes necessary to meet the demands of the shift in referral processes that will be inevitable. Outside of the impact of servicers and law firms, courts and sheriff offices will also be impacted by the combination of a restart and the potential increase in volume that they will face after moratoriums are lifted.

Judicial states are directly impacted by court operations. One of the impacts of COVID-19 has been a reduction in judicial activity in several areas of practice outside of the default space. In the event of a surge in foreclosure and eviction cases, the judiciary and clerks may be understaffed to process increased volume.

Sheriff offices that handle non-judicial sales will also be affected by the surge. These conditions will be unavoidable, and servicers and investors should be prepared for the impact. Clear communication regarding these conditions will be required on an ongoing basis.

While we look at the future and do our best to speculate how the landscape will change, we can all agree that there will be changes and post moratorium conditions will be different.

Embracing that “reality-check” and making appropriate adjustments to the new conditions will go a long way.

About Author: Roy Diaz

Roy A. Diaz is the Managing Shareholder of Diaz, Anselmo Lindberg, P.A. The firm provides representation in Florida, Illinois, Ohio, Indiana, Kentucky, Wisconsin and Michigan. Diaz has been a member of the Florida Bar since 1988. He has concentrated his practice in the areas of real estate, litigation, and bankruptcy. He has represented lenders, servicers of both conventional and GSE loans, private investors, and real estate developers throughout his career with an emphasis on the mortgage servicing industry for over 25 years.
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