This piece originally appeared in the March 2022 edition of DS News magazine, online now.
March 11, 2020, likely will never be as infamous as December 6, 1941, but it is the date that drastically shifted the focus and practices of the mortgage servicing industry. In the face of the expanding COVID-19 pandemic, the government launched foreclosure moratoria and expanded forbearance programs designed to keep borrowers in their residences while the economy recovered and everyone involved navigated the unexpected waters of a global health crisis.
Two years later, around 70% of the U.S. population has been vaccinated, infection rates are dropping sharply, most major cities and businesses have eliminated or greatly relaxed mask mandates and other related policies, and the various moratoria related to mortgage payments are ending. Though some servicing and other business practices may never return to pre-pandemic norms, the status of COVID-19 has moved from pandemic to endemic.
It's an environment that’s been expected for a while, and one that servicers should be prepared for. In a letter to servicers released in December 2021, New York Attorney General Letitia James said, “It is now important that the industry takes necessary steps to help homeowners seamlessly transition into resuming their payments, and that we save as many homes from unnecessary foreclosure as possible.”
In addition to the above letter, 21 attorneys general recently released a joint letter about FHA implementation; the Acting CFPB Director in April posted a blog post noting being unprepared for these challenges is no excuse, and the CFPB a month later introduced a new regulatory regime with the safeguards that just expired.
With the challenge of aiding homeowners coming out of forbearance now a critical focus for our industry, Five Star recently hosted two webinars delving into these topics. First, Five Star and Aspen Grove Solutions joined forces for a discussion entitled “Restarting the Servicing Engine: Loss Mitigation After the Pandemic.” Then, Five Star and Sourcepoint partnered for “The Human Touch: Why the Rise of Technology Still Requires Empathy.” For this month’s DS News cover story, we’re bringing you a look at these topics with insights from representatives of both companies as well as Selene Finance, ServiceMac, and the Housing Policy Council.
Navigating the Regulatory Landscape
Matt Douglas, VP of Mortgage Policy for the Housing Policy Council, noted that, despite the strong words and expectations, many regulators are industry veterans, and, therefore, can be understanding of the challenges servicers are facing in implementing those rules and timelines. However, Douglas suggests that there can be some disconnect between the different parties involved.
“There is a real understanding of what works, what doesn't, how long it takes servicers to implement things, the challenges, and how much detail it takes to be successful in operationalizing things. There is a real dissonance between the veteran regulators who, when you're talking to them, are quite reasonable, and senior officials who maybe don't have that experience.”
Douglas noted that the CFPB is currently examining how regulatory and investor guidance will work for everyone’s protection once moratoria and forbearances have all lapsed. The CFPB will closely examine if servicers took actions too quickly against delinquent borrowers.
There are currently close to two million loans in foreclosure and about a million loans in forbearance.
The Inflation Factor
A few months into 2022, one of the primary economic factors in play is rising inflation, with the Fed expected to raise interest rates at least four times this year, said John Vella, Selene Finance’s Chief Revenue Officer.
The first step in meeting this challenge is to ensure the proper technologies are in place to leverage remote work staff, Vella said. "In order to effectuate change, you have to be extremely good at it in this fluid environment.”
That means having the right communications, training, workflow, and supporting technology, as well as the ability to implement the solutions if they aren’t already operational. This enables companies to have a full view of operations and to be on a level playing field with competitors, Vella said. “If you don't have proper workflow, exception-based reporting, and rules engines with all of the different nuances, you will not be effective.”
Borrowers, especially those who are behind in their payments, could most likely be impacted, Vella added. In the past, they might have looked at refinancing to solve the issue, but rates have already gone up 50 basis points, and will go higher. As such, it will be more difficult to refinance. Add to that the increased cost of groceries, energy, and everything else due to inflation. Servicers need to be nimble to react to borrower circumstances and evolving market situations.
Senior leadership will be essential to dealing with the regulatory and other challenges, according to Douglas. “We’re hoping that this will resolve itself before it gets to a policy failure of foreclosure. But servicers are going to have borrowers who haven't been paying in years and who are not going to be able to pay. Some of them are going to end up needing to go through a property disposition option. Contractor delays are another issue that will need to be resolved.”
Vella added that subservicers should deal with loss mitigation on a portfolio-by-portfolio basis, not on a pool basis, tailoring their decisions toward their investors while also doing everything they can to work out a solution acceptable to the borrower.
The Technological Learning Curve
Early in the pandemic, servicers’ remote workers had to contend with lack of equipment, noisy home environments, unfamiliar technology, lack of tech support, lack of bandwidth, and similar issues. While many of those issues have eased (e.g., tech and bandwidth have improved for many, children are back in school in most areas), there are times when a lack of tech support is still an issue.
During the webinar, Vella ticked off some critical areas of technology that servicers should be investing in to surmount these hurdles, including self-servicing apps for borrowers, workflow programs, robotic process automation (RPA), and artificial intelligence (AI) to help improve efficiencies and manage costs. Using Microsoft Teams, Zoom, or similar platforms can help maintain face-to-face contact and personalization, helping bring workers into a servicer’s culture.
“One of the important points to consider as we’re interacting with customers through various technological channels is that we have the ability to do intelligent analytics in tracking the conversation, whether it’s email or chat,” said Steve Staid, EVP of the Mortgage Practice at Sourcepoint. “The emphasis on intelligent analytics becomes more important than ever, because we need to know more about the mortgages than the people calling us do.” Intelligent analytics will put that information at the agent’s fingertips, but calls need to be monitored to ensure agents are providing that information to the customers.
Vella noted that the end of moratoria and forbearances also means servicers will be moving a large percentage of their employees over from origination work, where many were shifted a couple of years ago, to default servicing duties. Since many of the new and veteran employees will be dealing with relatively new compliance rules, stringent oversight will be necessary. The new employees will need extra help to ensure all I’s are dotted and T’s crossed.
“In today’s environment, that’s more important than ever,” Vella added. There will be a similar approach for the forbearance exit process as for the loss mitigation process, with regulators looking for outliers, Douglas predicted. He recommended that servicers look to the Five Star Institute’s conferences and other industry events to share intel about best practices with other servicers.
“If you are up to the industry standard, it will help,” Douglas said. However, he also cautioned that even meeting industry standards won’t automatically provide “a grand shield.”
Training and proper scripting is more important than ever so that new employees, many of them working remotely, provide the expected service, according to John Lawrence, VP of Special Servicing at Selene Finance.
“Gone are the good old days of bringing everybody into a conference room and doing training.”
“I’m a big believer in training and making sure that the training is not only about content specific information, but also that we’re highlighting soft skills, through the training and encouraging agents,” said Steve Schachter, President of SourcePoint.
Agents need to be emotionally aware as well as knowledgeable about industry rules and regulations. Pop-up cues/tips can give agents real-time help with customer relations and with industry requirements.
Managing a remote workforce is challenging, noted industry consultant Patrick Coon (formerly of HomePoint and Cenlar). Coon said that the first step is to check daily to determine if there are technical issues that need to be solved before someone is “available.”
Customer and employee surveys can help keep tabs on performance and highlight any pressing issues and pain points so that everyone in the organization is aware of them.
“Audit, audit, audit,” Lawrence added. “Listen to phone calls. Our executive team listens to phone calls every month—the good and the bad. You need to hear what customers are saying, and you've got to listen to what associates are saying.”
By monitoring calls, one can learn where employees need to improve, Schacter said, adding that it’s important to support employees with the technologies they need to succeed. For Sourcepoint, that includes AI-based scripting that listens to the conversation agents have with borrowers in real-time and provides next-best conversation advice so they can be confident in their conversations.
“We want to make sure that our agents have the latest information,” Schachter said.
Staid added that Sourcepoint management also works to know what agents are best skilled for what tasks, using intelligent routing to send the right interactions to the right agents.
Empathy Is Essential
While technology is essential from an efficiency standpoint, the “human touch” remains critical when it comes to providing the empathy servicers must exhibit toward borrowers in today’s environment. That process begins, Coon noted, with truly listening to what those borrowers need.
“The key to this is being pragmatic,” Coon said. “We've gone through a tumultuous time over the last two years. Communication with customers is more important than ever, because of the concerns that they've had and issues that they faced. You have to acknowledge that they’ve gone through a lot and that there are ongoing concerns.”
“It's about being able to identify with them and to get on the same wavelength,” Lawrence said. “It's something that's difficult to do, but it's truly necessary for you to be able to really understand what the customer is going through.”
Empathetic communication with customers helps secure their business in the long term, Coon added. Servicers and staff alike need to know when a servicer will reach out and why (for instance, perhaps making contact on the 15th of every month regarding late fees). Communicating via the borrower’s preferred channel—email, chat, phone—is also very important.
A servicer’s website should also offer not only self-servicing options but also the latest information on a borrower’s account and status, Coon suggested. Schachter added that servicers should also ensure that their websites display properly, whether the borrower is using a laptop, PC, smartphone, or other web-enabled device.
Coon also noted that video interactions tend to better evoke and build a sense of empathy than online self-servicing. However, some servicing workers still have issues such as noise (pets, etc.) or bandwidth issues, so video can only be used on a limited basis.
Coon recommended testing video systems before deploying them.
Coon said that he expects text to eventually become the communications channel of choice for servicers and their borrowers. Whatever channel is used—even if it is a mix of channels over time—servicers need to keep meticulous records of conversations so details can be recalled when necessary.
Regardless of the channel, the servicer can’t be solely focused on the transaction, Lawrence said. During customer interactions, it’s important for team members to acknowledge borrowers’ feelings and allow customers to receive the information they need quickly if that's all they are after, but also let them know staff are available for a deeper conversation if that need arises.
“We need to do to get them back on track, whether that's a modification, deferment, or reinstatement,” Lawrence said. “In part, this means making sure they are informed and educated about all the various options available to them.”
“We’ve got to make sure that we're challenging the investor community as well on making sure that the documentation that we asked for is appropriate for the transaction and we're not being overly cumbersome,” Lawrence added. “After the last financial crisis, it was really hard for borrowers to get into some of the programs because you had to send so much information.”
Getting the proper information to borrowers when they need it is essential to maintaining engagement, Coon agreed. “We have to make sure they're simple; we have to make sure they're understandable.”
“The best thing that we can do is set expectations of what's likely going to be required and be really communicative,” Schachter said. “The more we can set expectations for the for the for the borrower who's going through the difficult situation, the better with we're preparing them to be able to respond. That includes making sure we can do that, and not just in one format, not with just one channel, but to engage them in an omnichannel way.”
Schacter added that servicers can establish and enhance customer relationships by proactively sending them not only relevant account information, but also informational articles about servicing, forbearance, refinancing, and other options available to them.
“It’s valuable information, and it’s free,” Schachter said.
Servicers need to be able to quickly change channels, because customers will often start an interaction in one channel, then switch to another,” Staid added. “You need to be nimble with your platforms. There’s no choice with the way things move today.”
That kind of flexibility is also needed to stay abreast of rules and regulations, particularly at the state level, Lawrence said.
“Bots are wonderful, but they go sideways fast, and you need to be able to engage over to a live agent quickly.”
There’s no question that mortgage servicers face a complicated list of challenges this year. But after the unprecedented landscape they have been navigating since 2020, there’s no question they can surmount them—so long as they approach the needs of both borrowers and their own teams with proactive intent and a healthy dose of empathy.