Overall U.S. delinquency rates are at an all-time low at 3.6%, but according to the Annual Report on the State of the Default Servicing Industry from Altisource, servicing professionals expect the rates for certain loan types to grow—specifically FHA and private lender loans.
Of the servicing professionals Altisource surveyed, 90% cited that their organization currently services FHA loans, up from 87% in 2018. Additionally, 80% expect their FHA loan portfolio to increase over the next 12 to 24 months and 85% (up from 77% in 2018) expect the increase to be more than 25%.
“The survey uncovered many industry insights, including vendor management challenges and the importance of online auctions as a disposition tool,” said Patrick G. McClain, VP, Enterprise Sales for Altisource. “With historically low delinquency rates, we may see a higher rate of FHA defaults in markets experiencing economic turmoil with little housing liquidity, such as rural areas. In addition, servicers are using a single-vendor approach to manage multiple pieces of the default lifecycle to help mitigate losses and streamline efforts.”
Vendor performance is becoming increasingly challenging as portfolios shift to rural areas and vendor pools for distressed loans and properties continue to diminish during this strong economic environment. Nearly one-quarter (22%) of servicing professionals surveyed said their biggest challenge when managing vendors is vendor performance; 17% cited costs and another 17% cited strategic alignment. When evaluating a vendor to manage their default portfolio, a significant majority of servicing professionals surveyed (96%) said property preservation and inspection is a leading consideration; 95% pointed to end-to-end default disposition capabilities and 94% cited a strong marketing platform/marketing scale.
“Due to the increasingly complex requirements around vendor management and vendor oversight, servicers are looking to vendors that can manage multiple pieces of the default lifecycle (i.e., REO asset management, property inspection and auction services) and that can seamlessly integrate with their current technology platforms,” Altisource said. “An overwhelming majority of servicing professionals surveyed (94%) said their organization is likely to select a single-vendor approach to managing the default lifecycle.”
More servicers are using online auctions, up to 89% from 76% in 2018 as part of their long-term strategy for asset disposition and 72% would like to do more online auctions (up from 50% in 2018).