With the forbearance moratorium expiring at the end of July and the CFPB’s new foreclosure rule taking effect in August, servicers have a lot to consider when working with borrowers on forbearance exits and loss mitigation strategies. HousingWire recently spoke with Travis Britsch, general manager of Hubzu, about post-forbearance strategies to benefit both servicers and borrowers.
HousingWire: As many forbearances come to an end, what are some strategies servicers can use to help borrowers?
Travis Britsch: Servicers should be communicating with borrowers early, ensuring to do so in a compliant manner by staying abreast of the current and proposed regulations, CFPB or otherwise. Alert them that they do have the option to sell their house now while in forbearance if they wish as a forbearance exit option.
Encourage borrowers early on to take advantage of loss mitigation options and take proactive steps to avoid foreclosure based upon best information right now – there isn’t much time left and waiting too long may mean missing out on better options (i.e., they may not be able to modify the loan, sell quickly or whatever else and thus end up foreclosed upon).
Servicers should also be sharing the mathematics of mortgage forbearance. Most homeowners will be exiting forbearance after 12 or even 15 months of not making payments. All those missed payments and interest need to be paid back. Even the strong increases in property values might not be enough to also cover those missed payments. This will be especially true for lower-income households with FHA loans that started with very little equity to begin with due to the low-down payment requirement.
HW: How can servicers stay ahead of higher-than-usual volumes?
TB: First, make sure they are fully staffed and/or building efficiencies internally. Second, ensure they are partnered with great vendors (i.e., Hubzu for Signature Seller Assisted Sale (SSAS), standard short sale, foreclosure and ultimately REO management and sales) that can perform well, no matter the volume.
Last, utilize all communication/education options available as early in the loss mitigation waterfall as possible, especially by alerting homeowners in forbearance early, well before their forbearance period ends, that they can sell their house in today’s hot real estate market and by clearly telling them what their payoff amount would be on the final date of forbearance protection.
Being in mortgage forbearance won’t hurt a homeowner’s credit score but exiting forbearance and going into mortgage default will seriously impact their credit score and adversely affect their ability to purchase another house for many years.
HW: What are some of the biggest challenges servicers are facing as they head into 2021 and 2022?
TB: Some of the biggest challenges are pent-up default inventory leading to a myriad of potential bottlenecks in the default servicing process. There are new regulations, CFPB or otherwise, as well as staffing challenges that servicers need to stay on top of. Many servicers reduced default staff due to COVID-19-related lulls in work but will likely need to rehire quickly and at the same time as a lot of others in the industry.
A lot of vendors that servicers previously relied on have severely reduced staffing and capabilities right now or have fully folded up shop. Thus, it would be prudent to ensure that all the necessary vendors (appropriately staffed, trained and high-performing) are already onboarded and ready to go once moratoriums and forbearances end.
HW: How is Hubzu prepared to help servicers in the event of increased defaults?
TB: Hubzu has been at the forefront of helping servicers handle default inventory since 2009 and has helped manage and sell over 225,000 residential assets with 2,500+ short sales for servicers and their borrowers.
In 2020, building onto its short sale offering, Hubzu launched its Signature Seller Assisted Sales program that helps borrowers who are in default — no matter whether they are in an active forbearance program or if they do or do not have substantial equity in their home — quickly market and sell their home to gracefully exit the default process before foreclosure is necessary.
Hubzu partners with servicers and they, in turn, engage borrowers early in the delinquency timeline. The servicers and Hubzu work together to educate and guide the borrower on the sales strategies best to maximize sales price with an expedited marketing period.
Often, this partnership among the servicer, Hubzu and the borrower can run in parallel to other loss mitigation strategies that the servicer would introduce. Borrowers selling through Hubzu also have the option to sell with a lease-back requirement that allows them to exit default but stay in the property during the period of the lease with the new owner.
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