Rising Tides of Economic Hardship

COVID-19 is causing more financial hardship for many homeowners than the Great Recession, according to mortgage and servicing experts. The April unemployment rate hit 14.7%, the highest figure since the 1930s, during the depths of the Great Depression. Even after that figure was reported, U.S. Treasury Secretary Steve Mnuchin said in an interview that the figure could get worse before it gets better, and that the actual unemployment rate—factoring in people who have quit looking for work and the underemployed—could be as high as 25%.

In addition, more than 3.5 million mortgage borrowers had asked for forbearance as of late April, according to the Mortgage Bankers Association. The volume of borrowers seeking forbearance or other financial assistance far surpasses the demands of the Great Recession. A recent DS News webinar entitled “Forbearance Agreements: Impact and Best Practices,” sponsored by Treliant, explored all aspects of recently implemented forbearance plans from a mortgage servicer perspective, including processes, meeting regulatory requirements without challenges, and preparing for the upcoming modification wave at the end of the period. With that event as a launching-off point, DS News now brings you an expended look at this topic, featuring insights from companies such as Bayview Loan Servicing, BSI Financial Services, Flagstar Bank, RoundPoint Mortgage Servicing, ServiceMac, and more.

“Customers are mostly seeking payment relief, which was available from the start with a forbearance plan,” said David Hughes, SVP of Contact Center for RoundPoint Mortgage Servicing Corporation, one of the nation’s largest, fully integrated nonbank mortgage servicing companies. “Many customers would like to see a deferral program where their mortgage term is extended by the number of months they are unable to pay. The GSEs were already in the process of developing a deferral program when the pandemic hit and are now working to fit the needs of those impacted by COVID-19.”

However, Hughes added that the program won’t work quite as some customers have sought, as the forborne payments won’t result in an extension of the remaining term, but rather a non-interest-bearing balance due when the loan pays in full.

“This could in the future introduce a hardship to customers intending to pay off their mortgage on an amortized schedule,” Hughes added.

COMPLIANCE CONCERNS

A record number of borrowers are requesting forbearance or modifications on their mortgages, presenting numerous challenges for the mortgage servicing industry when it comes to compliance, operations, and finances.

Servicers need to proactively notify and educate borrowers of any compliance or modification options and offers made, as well as any offers accepted, ongoing communications as incidents evolve, and any temporary, subsequent, and final resolutions— record-keeping that can be cumbersome at the best of times. With the surge in volume, it’s even more critical to have automation in place, said Jane Mason, CEO of Clarifire.

While physical letters have been essential documentation for years, the sheer volume of communications means that servicers need to be open to other forms of communication, said John Dunnery, Bayview Loan Servicing’s VP of Government Loan Servicing.

“The GSEs and HUD have mentioned other means of communication than by phone or letter—that’s a first,” Dunnery said. “They’re trying to push out there the need to contact customers in the way they normally get contacted, which is not through the phone anymore and not with the letter that normally gets trashed even before it’s opened. So, the opportunity for us to develop other ways of communication and how to leverage that communication in order to get out the message to customers is something new and hopefully something that most services have learned since the 2008 crisis—how to leverage that and implement that in their systems.”

Even servicers who have been much more conservative with their communication practices have had to shift to “meet consumers with where they are at in 2020,” using electronic communications when necessary, said Courtney Thompson, SVP, Default Mortgage Servicing, for Flagstar Bank. “There are many layers of risk infrastructure that we have to get through to get some of those [electronic] mechanisms approved and to control it appropriately.”

So, while technology helps cast a wide net for initial communications, follow-up call campaigns can provide consumers with more specific help, Thompson said.

Technology also helps because the jump in volume means that not all callers can get through in a timely manner. The call volumes, along with the rate of call abandonment (the consumer hanging up, often due to long wait times) has increased significantly in the industry during the pandemic, although ServiceMac said they have not experienced these issues impacting their customers.

“We increased staffing and have strong vendor support to ensure our service levels remain above the industry standard of 80% or more of the calls answered in 30 seconds or less and our abandonment rate remains below 2%,” said Sharon Zuniga, SVP, Default Operations, ServiceMac. Another compliance concern is agents who go off script on calls or in a text, Zuniga said.

Electronic communications can provide customers with some information so that they do not have to wait on the phone or keep calling back. However, regulators are closely monitoring forbearance and related Information provided through websites and IVR recordings, Zuniga cautioned. “It’s important that you monitor your websites to ensure the accuracy of the content as this is a source of risk concern going forward in our industry,” she added.

Dunnery said that Bayview helps ensure compliance by recording each call, then searching for specific keywords. The quality assurance team reviews the calls with the COVID-19-related keywords to ensure consistency, which is the hardest part of the messaging.

“Agents normally will stick to a story, but that story can vary, depending on the type of call, the type of borrower on the call, and the questions that are coming. Trying to maintain consistency has been difficult,” Dunnery explained. “We use daily feedback from the quality control calls for our team huddles to ensure that the message is consistent.”

Even with the shift to digital communications for many customer interactions and the ongoing importance of phone calls, physical letters are still essential elements of documenting changes in customer payment obligations.

“We do a significant amount of quality control on the letters that go out to the customer,” Dunnery said. “At last count, we were up to eight letters that could be mailed to the customer on top of all other letters they would get as they rolled delinquent, part of the normal delinquency servicing.”

Dunnery admitted that this can occasionally lead to confusion for customers, as some letters are a result of COVID-19 responses and others are more typical delinquency/forbearance letters.

“We are documenting each of the changes we are making to policies and procedures that are necessary to implement the responses that we are putting forward so that we create a paper trail for later,” Dunnery said.

Based on what happened during the Great Recession, regulators will likely be examining closely any changes to policies and procedures, Dunnery added.

“We want to make sure that the paper trail is adequate and maybe over communicated so that there are no issues in the future.”

A BOON FOR SUBSERVICING

While the pandemic and subsequent job losses are hitting mortgagees, mortgage holders, and servicers hard, it has meant a booming business for subservicers, said Bob Caruso, President and CEO of ServiceMac. He told DS News that business had grown 10% since the pandemic first hit, with some servicers straining to handle the surge in volume brought by current demand.

“We want to make sure that customers who are asking for forbearance or for modification don’t have any service-level issues,” Caruso said. So the interactive voice response (IVR) tree is simplified, asking customers to choose from only two options so that they can quickly advance to pandemic- or non-pandemic-related servicing.

Self-service can be helpful, but only to a point, according to Caruso, so SeviceMac directs callers to live agents to help make the payment/ resolution decision that is best for them.

“We want to make sure that the customer fully understands the different options,” Caruso explained. “We want to make sure that they know what forbearance looks like.”

THE STAFFING TWO-STEP

However, the business boom, combined with the social distancing measures that most companies are following, provides a challenge for companies looking to hire additional staff, Caruso said.

He said that ServiceMac uses LinkedIn and other resources to advertise for openings. In the past, applicants would be interviewed in one of the company’s offices, enabling executives to see nonverbal cues as well as verbal responses to questions. It’s not the same with a video interview, Caruso said. “It’s very different hiring people who you have never physically met.”

Some industry companies have approached staffing issues by moving to an “all-hands-on-deck” philosophy for managing the onslaught of communications demanded by the COVID-19 pandemic.

In addition to the sheer volume of calls, the call handling time for calls has doubled from about six minutes to nearly 13 minutes as consumers—many who had never been in a forbearance situation before—seek information on payment options, Thompson said.

“There was a real cathartic exercise that needed to occur with the consumer on the phone,” she explained.

Flagstar redeployed members from its Bankruptcy and Disclosure teams who had contact center training, as well as implementing special training to handle forbearance calls.

“It was an exciting and challenging group effort to make sure that we gave consumers as much access to us as humanly possible,” Thompson said.

KEEPING IN TOUCH

“One of the immediate challenges facing our customers is misinformation,” Hughes told DS News. “Some customers obtain an understanding of possible relief options that don’t exist and are understandably upset with the options that do exist.”

Hughes added, “At the outset of the crisis, RoundPoint developed and posted on our COVID-19 landing page, an online tool allowing impacted customers to quickly and easily set up a forbearance plan themselves. The online experience is detailed in explaining how the program works, the options that currently exist to address the forborne payments when the plan term ends, and the reality that other programs may become available in the interim. Our customer service associates have been trained to help our customers understand the same information. Both the online and the on-phone experience ends with an assurance that we will touch base with them regularly throughout the forbearance plan to check in on them and to provide any updates we may have.”

ServiceMac’s Zuniga recommended using websites to provide information, particularly considering the volume of communication. However, even the best website information can leave the customer confused because there are several different options, and each borrower’s situation is different.

“We still feel one of the best ways is to talk with our customer and educate them on what a forbearance is and what it isn’t,” Zuniga said. “There’s a lot of information out there. Our job isn’t to tell the customer what to do, but to listen to the customer about what they are going through, assisting them, helping them with their questions about the forbearance or the CARES Act and then helping them make what is the best decision for them.”

ServiceMac also shifted part of its call monitoring team to focus on forbearance-related calls to adjust scripting in order to better aid borrowers.

THE ROAD AHEAD

The COVID-19 pandemic’s effects on the economy, the American homeowner, and the mortgage servicing industry are likely to be studied and reexamined for several years after the crisis passes.

“We’re trying to understand where things will stand post-COVID,” said Allen Price, SVP at BSI Financial Services. “Some borrowers will get their jobs back; others will go back at reduced hours.”

Still others will find themselves looking for new jobs, or on extended unemployment. With so many unknowns regarding the pandemic, the economy, and the job market playing out over the next several months, Price said BSI is closely monitoring its portfolio for forbearances, defaults, and delinquencies.

Caruso also observed that many financial institutions jettisoned their servicing businesses following the last economic downturn. Will that trend reoccur? Only time will tell.

In the meantime, servicers and subservicers need to follow best practices now in compliance, communication, and operations to ensure that they minimize any impact to their businesses until payments and defaults return to more normal levels.

Mason speculates that it will take at least a year to stabilize the market. Regulators will carefully review what servicers and subservicers did during the height of the crisis, so it will be critical to have the right documentation for the right deferral plans.

Though there are some similarities to the sharp rise in delinquencies during the Great Recession, there are also enough differences that it’s hard to have a handle on how things will look post-pandemic, Price said.

Caruso added that, since there are so many unknowns, the GSEs should consider allowing borrowers to have multiple modifications. That would help those who could get jobs back as the economy reopens but could be out of work again if the pandemic gets worse, leading to future shutdowns.