A federal law passed on March 27 provides protections for homeowners with certain mortgages that are federally or GSE-backed or funded. The Coronavirus Aid, Relief and Economic Security (CARES) Act takes a two-prong approach. It allows borrowers who are experiencing financial hardship due to the pandemic to request and obtain forbearance from their loan servicer for up to 360 days, and it also prohibits the lender or servicer from foreclosing on any covered mortgage until at least Aug. 31, 2020.
But with the Mortgage Bankers Association reporting that 7.8% of all mortgage loans were in forbearance as of July 12 – translating into 3.9 million homeowners – and delinquencies expected to rise due to job losses and the expiration of government stimulus programs, are servicers capable of handling the increased call volume and responding to the needs of their customers? And what will happen when the moratorium on foreclosures ends and servicers are faced with an onslaught of workout requests?
Many industry experts feel that servicers have responded well to the challenges they face from the coronavirus pandemic. “I don’t know that anyone could have prepared for this,” said Craig Martin, managing director, wealth and lending intelligence, of J.D. Power. “I think they’ve done a fairly good job in a very complex situation.”
Martin said that servicers faced unprecedented technology challenges, including converting call centers to set employees up to work from home and investing in technology like new websites and other tools that educate and empower borrowers and enable them to request forbearance without the involvement of a live employee.
The ability of servicers to nimbly respond to changing market conditions results in more than just high customer-service marks, however; it also affects their bottom line. According to the MBA, the cost to service a performing mortgage was $144 at year-end 2019, while a non-performing loan cost $2,043 due to the added complexity.
The response to forbearance
Early reports indicate that servicers have been able to keep up with call volume through staffing up, additional training and improved technology such as websites and mobile applications. Many also tapped their prior experience handling natural disasters, such as hurricanes, to quickly respond.
“We have to be able to move very quickly to deal with dramatic changes to the portfolio and unanticipated volumes that come in,” said John Lawrence, executive vice president and chief servicing officer of BSI Financial Services in Irving, Texas. “We rolled out enhancements to our website, and we were able to hire staff for the increased call volume and train them remotely. We were as ready as you could be.”
According to the MBA, the average speed for servicers to answer a customer call was 2.6 minutes during the week ending July 12, compared to 13 minutes during the week ending March 29, just after the CARES Act was enacted. Call handle time increased slightly, from 7.3 minutes in the week ending March 29 to 7.6 minutes during the week ending July 12.
TD Bank staffed up to not only process forbearance requests but also to manage the high volume of mortgage applications – primarily refinances – prompted by the low-interest rate environment, said Steve Kaminski, TD’s head of U.S. residential lending. “We also redeployed and retrained colleagues within our operations team to ensure we have capacity in these high-priority areas,” he said. “It has truly been an all-hands-on-deck effort.”
TD also leveraged automated tools, developed a digital landing page and forbearance request portal and integrated “bot technology” to streamline the process of identifying eligibility for mortgage assistance.
Mr. Cooper, a Dallas-based originator and servicer, started taking what it calls a “digital-centric” approach four years ago to interact with customers. That allowed the company to immediately respond to the influx of customer calls regarding forbearance. “Within 48 hours of the CARES Act being passed, we set up a digital solution so our customers could sign up for a forbearance plan online,” said Neenu Kainth, chief digital officer of Mr. Cooper Group Inc. Sufficient content was posted so customers could bone up on forbearance and opt for a plan either via Mr. Cooper’s website or mobile app.
And, if the government doesn’t extend the moratorium on foreclosures, customers can access their personal forbearance dashboard as Aug. 31 approaches to learn about possible solutions, whether that’s an extension of their forbearance plan or a workout solution such as modification.
Of course, not everyone is as confident that servicers will be able to handle the deluge of foreclosure calls. “Servicers in the past have shown an inability to be consistent to offer programs,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “We’ve seen so many errors with accounting and where customers thought they had modifications but servicers screwed it up. I don’t have a lot of faith in the servicing industry, but hopefully they’re using this time now to put systems in place so they aren’t overwhelmed.”
Ready for foreclosures?
Without additional action by the federal government, lenders are free to foreclose on delinquent borrowers after Aug. 31, 2020. With delinquencies spiking in April to their highest level since January 2016, according to CoreLogic, and with 6.1% of all mortgages in some stage of delinquency (30 days or more past due), many homeowners are at risk of losing their homes.
But while servicers say they’re prepared and expect a seamless transition from forbearance to workout or foreclosure, some are predicting there won’t be a flood of foreclosures at all.
“There are a lot of other options to consider,” said Marina Walsh, MBA’s vice president of industry research. “There may not be massive foreclosures because unlike the Great Recession, we have a housing availability issue due to inventory constraints. If a homeowner has an equity buildup, there are loss mitigation options available other than foreclosure.”
Indeed, Black Knight recently reported that tappable equity rose by 8% year-over-year in the first quarter of 2020 to a record high of $6.5 trillion, thus allowing homeowners the ability to explore options, such as the sale of a home, to avoid foreclosure.
This crisis is different
During the financial crisis, servicers weren’t prepared – they lacked sufficient staff, the staff they had wasn’t properly trained, there was little technology and there were no procedures in place to handle delinquencies. But times have changed.
“Servicers have had fair warning about what they need to do,” said Rheingold. “One would think they could prepare for the oncoming slow train that we expect to see when forbearance runs out.”
How servicers handle the coronavirus crisis will no doubt impact their future success. “This is a watershed moment,” said J.D. Power’s Martin. “Firms that demonstrate concern and make it easy for customers to get help will pay off in years to come — that will show up in more business and better retention. But firms that try to do business as usual and pinch pennies right now will be problematic moving forward.”