Economic downturns. Health crises. Natural disasters. The occurrence of events like these is inevitable, yet their timing and lasting effects are impossible to predict. Though the housing industry may not be able to pinpoint the next widescale impactful event, developing a well-grounded plan can help navigate it, mitigate risk, and get homeowners back on track.
Because massive events often share similarities, lessons learned from the past should influence future strategies. Unfortunately, the housing industry has seen two major events—the 2008 housing crisis and COVID-19 pandemic—that have created significant challenges for homeowners and servicers. However, the industry has responded with initiatives to leverage the latest technologies, design flexible policies, establish strategic partnerships, and continuously innovate, allowing the housing ecosystem to become stronger, smarter, and more resilient. Freddie Mac shares insights from learned experiences, both past and recent.
Proactive? Reactive? How About Both?
During an unexpected event, speed to market is critically important to help a servicer’s customer base. A proactive approach is generally lauded as preferable to a reactive one. While the former conjures associations of initiative and take-charge leadership, the latter is often unfairly derided as passive and wait-and-see. But is it really that simplistic, and does it need to be A or B?
Being successfully proactive requires flexibility, not rigidity, and an acknowledgment that reacting to unique events is also okay—if it is for the short term.
“No matter the event, we want to be able to flip switches, not by making wholesale changes but by having fundamentals built-in, from policy to tech to testing,” says Dave Lucchino, SVP, Single-Family Operations at Freddie Mac. “This limits the reaction so you can readjust to a more proactive state.”
Test, Test, Test, Streamline
That malleability involves planning and executing solutions that are regularly tested and streamlined, with adaptability built in for unexpected variables. The same way that a sailor takes a new tack when the wind shifts direction, changes to a situation can necessitate tweaks in parameters to apply them in a more relevant way.
Ten years ago, Freddie Mac responded to Hurricane Sandy by updating and refining disaster-related policies to better serve homeowners. It has continued to refine and adjust these policies—through the three major hurricanes of 2017 and beyond. The policies were most recently updated in 2021 to expand the definition of an “Eligible Disaster,” reducing friction in the insurance loss settlement process and introducing the Disaster Payment Deferral. All of these made meaningful impacts to streamline processes while continuing to effectively manage risk.
More recently, the COVID-19 response provided an opportunity to apply existing disaster relief initiatives in an unprecedented servicing landscape. Requesting additional documentation from borrowers who were already missing payments would have been superfluous. By waiving this step, the industry was able to better accommodate distressed homeowners and act quickly to offer solutions like payment deferrals and forbearance—with limited steps and paperwork.
“Having streamlined steps and policies in place not only increased efficiencies in loan servicing, but also had a positive downstream effect on homeowners,” continues Lucchino, “allowing them to remain in their homes and benefit from refinancing opportunities at a time when interest rates were at record lows.”
Overcommunicate and Collaborate
Well-developed collaborations and consistent communication with servicers and other stakeholders help significantly reduce market headwinds. Meaningful changes to policies and programs are not done in a vacuum, but with FHFA and Fannie Mae producing aligned programs to help with speed to market and consistency. Just as importantly, proactively and reactively collaborating with servicers and other industry participants ensures that policies and programs are easily understood, implementable, and will provide the quickest and greatest benefit to impacted homeowners.
Strategize to Digitize
Solutions like these require technology and data—two crucial aspects of preparedness. According to a Forbes Insights report published in association with Freddie Mac, 94% of leaders say digital processes and advanced analytical tools will lead to improved decision-making and security and better outcomes for borrowers.
Continuous investment in the latest technology eliminates scrambling at the eleventh hour to implement the right digital tools. During the pandemic, distressed borrowers have been able to easily access mortgage relief resources through self-service portals, preventing servicer call centers from becoming overwhelmed while also impacting delinquency rates.
“Resolve®, Freddie Mac’s default management platform, is a key example of investing in the future of servicing. It provides Guide-compliant workout decisions, so servicers can have real-time interactions with borrowers on eligibility,” Lucchino points out. “Resolve sets the foundation to be proactive up front and then react faster to variables.”
No matter what economic challenges lie ahead, having the right tools, policies, and people in place prepares your organization to weather unforeseen events and continue to serve customers. Unexpected events always lead to a phase of reaction; it’s how—and how quickly—we pivot to proactivity that makes all the difference. Stay invested with us on building the future of mortgage servicing.