This piece originally appeared in the November 2021 edition of DS News, available here.
As Senior Vice President of Single-Family Portfolio Management at Freddie Mac, Kevin Palmer has broad responsibility for the Single-Family portfolio, including Freddie Mac’s guarantee book of business, pricing and analytics, servicing, and REO. He also leads Single-Family Credit Risk Transfer (CRT), including Freddie Mac STACR (Freddie Mac Structured Agency Credit Risk) securitizations, ACIS (Agency Credit Insurance Structure) reinsurance, Freddie Mac Whole Loan Securities (WLS), and front-end risk transfer offerings. He holds an MBA in finance from Virginia Tech and a Bachelor of Arts in economics from Weber State University.
After previously speaking with us over the summer, Palmer reconnected with DS News to provide a few more insights into how Freddie Mac is working with servicers to better assist struggling homeowners coming out of forbearance.
[Editor’s note: A version of this interview appeared in the September 20, 2021, edition of the DS5: Inside the Industry webcast.]
We’re seeing increasing numbers of homeowners exiting forbearance plans started during the pandemic. How should the industry prepare for an upcoming increase in delinquency volumes? What factors will be most critical as far as working to minimize credit losses?
Palmer: It’s a great question. It’s an important question, especially right now. Minimizing credit losses takes a great deal of collaboration between our servicers and the homeowners. It’s important for to help by providing the resources and tools for servicers to evaluate the various loss mitigation options in the most effective way. Last year, we started a campaign called #HelpStartsHere. This initiative was designed to provide resources to our clients to [help] assist homeowners through their COVID-19 hardships.
There are three things we look at for minimizing credit losses. The first is communication, [both] with the servicer and the homeowner. It’s important that communication happens early and often, so the homeowner has enough time to weigh the options that they might [have available] at the end of their forbearance period. The second is educating homeowners on mortgage relief options. There are many options available to homeowners in forbearance who have been impacted by COVID-19. Understanding what those options are before the end of their forbearance period is critical. These are options like a full reinstatement, which many homeowners have used, which is a one-time lump sum to be able to come back current on their mortgage. There are also repayment plans, and there’s something new that we rolled out during the pandemic that’s called a payment deferral.
A payment deferral allows the homeowner to resume making their normal monthly mortgage payment. Any of the payments that were missed during forbearance are added to the end of their mortgage, and no interest accrues on that. That amount is paid off when the loan is refinanced or the home is sold, or when the loan comes to the end of the mortgage term. We’ve seen the majority of borrowers use this option to be able to come current on their home when they’ve previously been on forbearance.
Of course, there are some borrowers who have had a more permanent reduction of income. On a loan modification, the goal is a lower mortgage payment. To achieve a lower payment, there’s a reduction of interest rate and/or an extension of the loan term.
We also have other workout options if home retention is not viable for the homeowner—even an option of selling the home. And in many cases, the borrower is able to tap into equity that they’ve accrued during this time, which is so important. Of course, the goal is always to be able to achieve sustainable homeownership.
The third item is technology. We’re encouraging servicers to really lean in with technology, particularly default management tools, and to use technology to its full capacity. This enables them to maximize efficiencies and provide faster mortgage relief to homeowners. Since the last time we talked [in June 2021], we’ve seen huge success with borrowers being able to come off forbearance and back to current.
In fact, we’ve seen roughly 800,000 borrowers use forbearance during this pandemic, and we’ve seen over 80% of them now become current on their loans. Now, we still have a lot ahead of us. The remaining 20% of borrowers who are not yet back on their feet: we’re monitoring that closely. It’s important for those borrowers to understand there are resources available to them. We also know that we’re not through this pandemic. So, to the extent that borrowers have needs, I encourage them to contact their servicer and work with them to understand the options that are available for mortgage relief.
Could you expand a bit on some of the tools that Freddie Mac is offering servicers to help them assist their customers, the homeowners
Palmer: Throughout the pandemic—and even before the pandemic—we’ve kept to our commitment to Reimagine Servicing. This is a huge dedication that has allowed Freddie Mac to invest in the tools, resources, policies, and processes to be able to make servicing more efficient, especially in times of need. Especially during the pandemic, as well as through natural disasters that can occur.
Let me give two examples of that. First, we’re speeding up mortgage resolution with a tool called Resolve. Resolve is our new default management platform that continues to expand capabilities. It has an integration option where servicers can get real-time workout eligibility decisions, which is unprecedented in this industry. With Resolve, it’s about removing manual data entry through automation and placing a greater focus on data versus paperwork. Ultimately, the homeowner benefits because the servicer can provide assistance much faster and with less documentation.
We’re also improving efficiency of expense reimbursement through a tool called PAID. PAID stands for Payments Automated Intelligent and Dynamic. With a name like that, there’s a lot to live up to, but we believe this tool does it. Servicers need to be able to keep cash flowing and not get bogged down with too many steps waiting on payments.
Now, servicers have a new way to get reimbursed for servicing Freddie Mac loans. PAID allows servicers to submit and view expenses and get their status updated in real-time. It also has intelligent workflow design and oversight.
We’re not done yet; there’s more on our roadmap. I invite servicers to see what’s ahead and hear from some of our early adopters. We’re committed to collaborating with our clients and providing solutions that help them thrive. There’s more information that can be found by visiting our website at sf.freddiemac.com/reimagineservicing.