Some sectors of the housing industry have begun adjusting to the new normal brought on by COVID-19; however, servicers continue to face a number of lingering challenges related to the CARES Act and increasing forbearance numbers.
Under the CARES Act, homeowners have been able to ask for forbearance from their mortgage servicers and suspend payments for up to 12 months. Though numbers have declined since hitting a peak earlier this year, the Mortgage Bankers Association estimates there are still at least 3.4 million homeowners in forbearance plans.
According to the MBA’s latest Forbearance and Call Volume Survey, when broken out by stage, 28.50% of total loans in forbearance are in the initial forbearance plan stage and 70.07% are in a forbearance extension, with 1.43% as forbearance re-entries.
Ultimately, these numbers mean a great deal of work for servicers, who must operate not only in compliance with existing regulations, but within the guidelines of the CARES Act.
With the number of borrowers seeking forbearance through the CARES Act, servicers may be experiencing staffing challenges as they aim to provide guidance and support.
Prior to COVID-19, servicers were staffed to handle a historically low number of delinquencies and defaults. But the number of borrowers in forbearance through the CARES Act has expanded their pipeline with very little warning, and their customer support staff may be particularly feeling the strain.
Current call center numbers from the MBA show that for the week ending Sept. 27, as a percent of servicing portfolio volume (#), incoming servicer call center calls decreased from 8.3% to 6.8%. For the same period, average speed to answer was 2.3 minutes.
The high volume of incoming calls makes it more difficult for servicers to communicate effectively with each borrower. They need to not only help borrowers enter forbearance but are also required to reach out before the end of each forbearance period to determine the appropriate post-forbearance relief option based on investor/insurer waterfalls.
Fannie Mae and Freddie Mac offer scripts for these conversations, but if servicers are increasing headcount to accommodate the numbers of borrowers needing assistance, it still requires them to effectively train new staff in a virtual, work-from-home environment – another strain on resources.
As servicers attempt to deal with the added pressure of forbearance requests, they must also remain in compliance with regulations at all levels. The government response to COVID-19 has complicated this, as guidelines and requirements can change quickly.
For example, in August the Federal Housing Finance Agency extended its moratorium on foreclosures and evictions for borrowers with Fannie and Freddie-backed mortgages just four days ahead of its previous expiration date. Updates to crucial information rolling in just under the wire can leave borrowers confused or panicked, resulting in another wave of incoming calls crashing down upon servicers as they update their processes to remain in compliance with new guidelines.
To further complicate matters, these requirements are not always aligned on a federal, state and local level, which means servicers must navigate and be compliant with a variety of guidelines. This requires coordinated efforts to track legal and regulatory changes, often involving representation of multiple business and functional areas. Depending on organizational and product complexity, automated solutions are necessary to track changes, distribute information to stakeholders and follow up on implementation efforts to validate that the change has been successfully completed.
For those looking to leverage electronic solutions, the evolving requirements related to remote online notarization (RON) can be particularly difficult to navigate. Digital solutions can improve the borrower experience, reduce costs and streamline processes, but require additional care and attention to compliance requirements on multiple levels. It is a best practice for servicers to partner with an organization that can support compliance needs in this area.
RON legislation has been fragmented for a while, but in light of COVID-19’s limitations, many states have put emergency measures in place to allow notaries to carry out RON or RIN. However, not all forms of RIN meet the minimum standards of RON required for real estate transactions. Servicers must ensure they comply with all guidelines from the federal level down to the local jurisdiction. As a result, when looking for the right solution servicers must make sure it’s for the long run, with an eye toward accounting for an evolving regulatory environment.
Given the complexity of servicing, the extensive and complex legal and regulatory requirements that must be proactively managed, and the external stressors placed upon servicers by COVID-19, it’s both more important and more difficult than ever for servicers to ensure their work remains in compliance not only with standard regulations but with the CARES Act and ever-evolving guidelines.
One measure servicers can take to ensure their operations stand up to examiner scrutiny is to undergo a compliance review. Wolters Kluwer offers consulting services that include a CARES Act Compliance Examination Review based on the Federal Reserve Board and the Conference of State Bank Supervisors’ recently published examination procedures.
Advisory Consultants with Wolters Kluwer can help financial institutions prepare for the CARES Act exam through an assessment of their:
- Compliance with the credit reporting and mortgage servicing provisions of the CARES Act
- Quality of the compliance risk management systems
- Reliance that can be placed on internal controls, policies and procedures for monitoring compliance with the CARES Act
- Processes for effecting corrective action when violations of law are identified or where compliance management system deficiencies are noted
With the challenges of servicing under the CARES Act, it’s more critical than ever that servicers maintain a framework to ensure their compliance responsibilities are thoroughly met. By undergoing a thorough CARES Act Compliance Examination pre-examination review, servicers can identify and address potential weak spots and hazards before they become a larger problem.