This story originally appeared in the July edition of DS News.
For mortgage servicers, the challenges never seem to end. After several years of wildfires, tornados, hurricanes, floods, and other natural disasters, a new disaster has come along to top them all. And the worst part is that no one knows with certainty when the pandemic or its impact on the economy will end. What we do know is that a wave of delinquencies and defaults is almost certainly on its way.
While there are multiple foreclosure moratoriums in place to prevent Americans from losing their homes during the crisis, it’s likely that many will continue to struggle financially when they end. Which means servicers should be preparing now for what happens when the smoke clears.
On March 18, the federal government ordered a moratorium on foreclosures and evictions and put out the word to borrowers to contact their servicers about forbearance options on their loans. The FHA, HUD, the USDA, and Fannie Mae and Freddie Mac also announced similar freezes. Some banks have also announced their payment moratoriums, some as long as 120 days, while others have suspended payments for certain borrowers.
These steps are necessary to ensure millions of Americans who are facing job layoffs as a result of the pandemic are able to stay in their homes. At some point, however, the relief will end, and it will most likely end before many borrowers have fully recovered financially. When that happens, servicers will need to be ready to handle a surge in requests from borrowers needing help. Increased call volumes should last for some time, too.
According to a February 2020 CoreLogic report, mortgage delinquencies caused by the wave of catastrophic weather events that took place in 2019 are not expected to return to normal for 12 months or more. In the case of a much longer, sustained disaster like the pandemic, the impact on borrowers could last much longer as well. Over the coming months and years, the spotlight will be pointed at mortgage servicers. Questions will be asked about how prepared they were to help delinquent borrowers, as well as how well they performed in their objectives. The reality is that many weren’t prepared. While it’s fair to say that no one was prepared for a disaster of this magnitude, many servicers were ill-prepared to handle volumes brought on by near-term natural disasters, which now seem minor in comparison to the pandemic.
Over the past several years, Mother Nature has exposed weaknesses among servicers and their capacity for managing large waves of borrowers in crisis. This happened despite the fact that servicers had plenty of opportunities to invest in technology and improve the customer experience in prior years. But there is always an opportunity to do better, even amid today’s crisis.
What Servicers Need to Do
Right now, servicers should be preparing for ongoing uncertainty in a post-moratorium world, where the only certainty is that call volumes will increase substantially. That’s why, from a policy and operations standpoint, the first thing servicers should be doing is ensuring they have maximized all possible communication channels borrowers are likely to use.
This includes providing assistance through the servicer’s website and providing borrowers with access to their accounts regardless of their preferred method of communication. For example, while providing borrowers with self-service help on a servicer’s website is important, so is a well-defined inbound call strategy. Many older borrowers do not prefer using the internet to get assistance on their mortgage, while other borrowers may find themselves without internet access for any period of time because of their financial challenges. This means servicers should have an inbound call strategy that limits the amount of time borrowers spend on hold before speaking with someone. It may also mean leveraging interactive voice response (IVR) technology that is able to gather information from borrowers when a representative isn’t available.
Another tool servicers should consider are mobile apps, which have proven to be incredibly valuable during recent natural disasters. Such apps are able to push out notifications to borrowers and remind them to reach out if they are having trouble making payments. They can also be useful for sharing important information about the pandemic and other emergency resources that may be available to those in need. One of the more inexpensive channels for helping borrowers—and also one of the most overlooked—is social media, which also played a crucial role in staying engaged with borrowers during previous crises. Social media can be a powerful aid for letting borrowers know about all the options that exist that may keep them in their homes, such as payment moratoriums, mortgage forbearance, and financial assistance being provided through the federal government or housing agencies.
Internally, there are plenty servicers can do to improve their behind-the-scenes operations while minimizing costs. For example, AI, machine-learning tools, and automation can help detect borrowers who may be experiencing trouble making payments before they contact the servicer to help. By automatically tracking anomalies in a borrower’s payments, servicers with the right system in place can proactively reach out to the borrower and help keep them in their homes. Automation and similar tools are equally useful at accelerating the process of determining which options to offer individual borrowers.
After the moratoriums end, if a borrower’s finances are still strained and they are in danger of missing payments, time will be of the essence. In some cases, automated servicing technologies have been shown to double a company’s decision-making speed, allowing them to help borrowers save precious time when choosing the best path forward.
Why it's Important to Act Now
While the moratorium gives borrowers a breather from making payments, it will not solve their financial issues if they are unable to work for an extended period of time long after the pandemic ends. That’s why it’s crucial for servicers to start preparing now for the wave of delinquencies and defaults that are surely to come over the next year. The good news is that some of the same technologies I mentioned earlier can also be leveraged to control costs and more efficiently deploy teams on borrowers who need assistance the most. At the same time, however, many servicers aren’t able to build such systems themselves, or they must rely on their servicing technology vendors for help.
And many legacy servicing platforms have not updated their systems for years and are unable to scale to meet the type of volume increases servicers will likely see in the months ahead. For servicers that find themselves lacking the tools and resources they’ll need to handle future volume, the best bet may be partnering with a specialty servicer that has experience in disaster planning and also continues to invest in its technology to help servicers achieve better performance. Such a partner can offer servicers almost complete scalability while enabling them to act nimbly and flexibly to meet changing conditions. The best specialty servicers are those that have the technology in place to anticipate potential delinquencies before they happen. They are also capable of managing assets from cradle to grave. Ideally, however, a servicing partner should also be able to “decouple” its services and provide certain services on an a la carte basis. This gives servicers and investors the freedom to manage loans at certain stages of delinquency themselves, should they need to do so.
To be sure, there are certainly lessons which can be drawn from recent natural disasters. But the servicing industry has never faced a crisis of this breadth and magnitude before, nor has it dealt with the shutting down of normal day-to-day life on the scale that is happening today. Hopefully, by the time this article is published, the U.S. will have flattened the curve on the deadly coronavirus and the economy will be on the road to recovery. However, it’s vitally important for servicers to view the foreclosure moratorium as an opportunity to work with borrowers in helping them manage through an unprecedented and critical time, and with the ultimate goal to keep homeowners in their homes.