Mortgage servicers in this era of widespread expiring forbearance plans face what experts are calling "staggering" operational challenges which have been exacerbated as various agencies—including Federal Housing Finance Agency and Federal Housing Administration—issue updated expiration timelines, regulatory requirements, and complex loss mitigation waterfalls. Expounding on the latest Mortgage Monitor study from the data and analytics team at Black Knight, division President Ben Graboske details the daunting task—enormous responsibility to borrowers—facing today's loan servicers.
"Prior to the agencies issuing clarifying guidance on allowable forbearance periods, some 950,000 plans were set to expire over the final six months of the year—representing about half of all loans in forbearance. That estimate assumed a blanket 18-month maximum allowable forbearance period. However, now we have detailed matrices of differing forbearance periods across the various agencies. Depending upon the specific agency and when forbearance was initially requested by the homeowner, a plan can have a 6-, 12-, 15- or 18-month limit. Assuming borrowers stay in for the maximum allowable term, this means plans that started as much as seven months apart are now scheduled to expire simultaneously, frontloading expirations of forbearance plans sooner than estimated.
"As a result, 65% of active plans—representing approximately 1.2 million homeowners—are now set to expire over the rest of 2021, including nearly 80% of all FHA and VA loans in forbearance. Nearly three quarters of a million plans would expire in September and October alone. Over the course of just two months this fall, the nation's mortgage servicers would have to process up to approximately 18,000 expiring plans per business day, guiding borrowers through complex loss mitigation waterfalls directed by changing regulatory requirements. The operational challenge this represents is staggering, even before noting the oversized share of FHA and VA loans. Given the heightened challenges those borrowers may face in returning to making mortgage payments as compared to those in GSE loans, effective loss mitigation efforts and automated processes become even more critically important."
The report also unearthed some vital information related to principal, interest, taxes and insurance (PITI) payments and how they are affecting past due loan payments.
"Past-due PITI payments have risen by $32 billion since the onset of the pandemic," according to the report.
"More than $9 billion in homeowner assistance funds (HAF) have been allocated as part of the American Rescue Act to help assist borrowers with past-due payments. Assuming 100% of allocated HAF dollars goes directly to helping homeowners become current on missed mortgage payments—unlikely, given the program outlines other potential uses—the allocated funds would cover approximately 30% of the pandemic-related rise in past-due mortgage payments at the national level. However, that percentage varies noticeably from state to state, with some states' minimum HAF allocation enough to more than pay off all pandemic-related, past-due mortgage payments, while that of other states barely covers a tenth of outstanding volumes."
Much more detail can be found in Black Knight's June 2021 Mortgage Monitor Report, available on BlackKnightinc.com.