[PULSE] Pandemic is rewriting the playbook for mortgage origination – Servicing is next
The economic toll of coronavirus has been profound and precipitous.
The week before last, 3.3 million people filed for unemployment in the United States. It will be days before the Labor Department tells us how many more followed suit last week.
These millions of unemployed Americans are our neighbors, family members and friends, and they’re worried about losing their homes. To help them, our industry needs solutions that are simple, streamlined and — above all — unprecedented.
Though lessons can be gleaned from the 2008 financial crisis, we can’t expect to use the same playbook, as it has become clear we’re playing an entirely different game.
Originators are preparing with agility drills
Fannie Mae and Freddie Mac took quick action recently by relaxing their standards for property appraisals, which will ease concerns over appraiser safety and travel restrictions. The GSEs also acknowledged the difficulty of verifying employment amid coronavirus-related office closures by authorizing the use of verification alternatives including paystubs and asset data.
Meanwhile, a bipartisan bill introduced two weeks ago would authorize every notary in the United States to perform remote online notarizations (RONs).
These are strong opening salvos that will enable lenders to continue operating during this period of national crisis, but it’s still the first quarter and we’ve got a long game ahead of us. While originators are scrambling to accommodate the needs of homebuyers and those in the process of refinancing their mortgages, servicers need to prepare for the coming wave of distressed borrowers.
Servicers must build endurance for the long game
Congress’s $2 trillion relief bill, the biggest in history, calls for direct payments of $1,200 per adult and $500 per child for most Americans, but analysts estimate it could take six weeks or more for checks to arrive — by which time households will owe another month’s mortgage. With the median U.S. mortgage payment costing around $1,500 a month, the relief will only go so far.
Foreclosure data is a lagging indicator; by the time the numbers show consumers are in distress, it’s often too late to help them.
So while January saw record low foreclosure starts and February mortgage delinquencies were only barely up from the previous month, now is the time to enact policies and processes that will prepare servicers to respond to extraordinary numbers of borrowers in crisis.
Action is already being taken on the policy front. The MBA joined other trade associations last week in delivering a written appeal to the White House requesting the government’s partnership in communicating payment forbearance and loan modification programs to borrowers. The group also stressed the importance of maintaining non-bank mortgage servicers’ liquidity, even if that requires assistance from the Federal Reserve.
In addition, the FHA, Fannie Mae and Freddie Mac all recently announced 60-day foreclosure moratoriums. While these measures could be extended past their current, mid-May expiration, there are no guarantees.
Servicers must take advantage of this calm before the storm to strengthen internal processes around foreclosure prevention.
Specifically, the MBA has emphasized the need for mortgage servicers to prioritize assistance for those in actual economic distress due to the pandemic. In other words, servicers must be able to accurately assess the financial situation of those seeking payment forbearance or loan modification, both to determine whether borrowers qualify for assistance and to calculate their ability to meet modified loan terms.
Servicers will face the same challenges that are plaguing originators when it comes to verifying borrower employment, and they’ll likely see an uptick in income fraud to boot.
The next 60 days are a window of opportunity for servicers to scale capacity and implement direct-source data solutions that address these challenges while also reducing the time and effort required of borrowers.
The best defense
Shoring up servicing companies to respond efficiently to forbearance requests is an undisputed priority, but the ideal long-term play is to expedite refinances for the estimated 10-million-plus borrowers who would save by refinancing at current interest rates.
As MBA President and CEO Bob Broeksmit observed, “The mortgage industry can best support the economy and unleash billions of dollars of fiscal stimulus by helping Americans refinance to a lower rate, thereby freeing up resources for them to spend on other needs.”
Capacity limitations, investor guidelines and certain regulatory hurdles now stand in the way of achieving streamlined refis on a mass scale, but these obstacles are not immovable. Private firms like FormFree are working closely with investors and the public sector to build solutions for delivering fast and meaningful refinance liquidity to Main Street.
Specifically, we envision a combination mortgage-stimulus and default-prevention program that fast-tracks refis for homeowners with existing Fannie Mae, Freddie Mac, FHA or VA loans.
This public-private partnership, which we’d call the Coronavirus Assistance Refinance Program (CARP), could make monthly mortgage payments more manageable for millions of homeowners before they ever find themselves in default.
Expect extended overtime
We’re in this one for the long haul. All expectations that the economic impacts of coronavirus might be short-lived, at least in comparison to the 2008 financial crisis, have been dashed.
But by answering these unprecedented times with a willingness to throw out old playbooks in favor of innovation and adaptability, this industry has the opportunity to shape the course of our recovery.
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