RMBS Servicing Challenges in 2020

According to Fitch Ratings during its most recent U.S. RMBS servicer roundtable, change is coming for U.S RMBS servicers in 2020. RMBS servicers shared perspectives on important industry trends and developments during Fitch Ratings' fourth annual U.S. RMBS servicer roundtable event.

"Ultimately, the industry is expected to embrace new digital technologies where it supports clear efficiencies and a cost-benefit," said Fitch. "However, servicers that are most effective in leveraging technology to directly embrace challenges such as the anticipated LIBOR transition, periodic catastrophes, and industry competition are more likely to be successful in 2020 and beyond."

According to Fitch, U.S. RMBS servicers showed an improved awareness of difficulties and implications tied to the anticipated expiration of LIBOR at the end of 2021. Servicers are also preparing for natural disasters as risk increased over the past decade. Servicers use FEMA-designated disaster area notifications to assess the initial impact to their borrowers. Strategies that servicers employ include waiving late fees, temporary credit bureau reporting cessation and short-term forbearance plans. The GSEs, as well as private investors, have policies that address most disaster scenarios and such policies have been institutionalized across the mortgage servicing industry. Servicers agreed that while natural disaster frequency has increased, the impact to their portfolios has so far been minimal.

Servicers also discussed low delinquency rates.

"For instance, banks are subject to liquidity stress tests, but non-bank servicers are not subject to those requirements and maintain liquidity from investors and clients, which, in a stressful environment, can jeopardize advance facilities. On the other hand, the participants noted that a well-capitalized investor parent could serve to minimize liquidity risk for a non-bank servicer subsidiary."

Technology continues to play an integral role in the industry and servicers are implementing automation enhancements to maximize efficiencies that include eMortgages, artificial intelligence and robotics.

"Servicers indicated that they expect the eMortgage trend to continue as loan originators drive the demand for eMortgages. Robotics is a technology viewed by servicers that can eliminate redundant processing, although the cost of implementation may be prohibitive, requiring a cost-benefit analysis prior to implementation."