Regulation, forbearance leaves mortgage servicers in a bind

Lack of clarity from regulators and inconsistent application of technology could create serious issues in the future

The COVID-19 pandemic has caused historic, unprecedented challenges for mortgage servicers. Forbearance deadlines get pushed back seemingly in perpetuity, and an unproven, inconsistent technology infrastructure has the potential to result in a series of foreclosure and loss mitigation crises.

This was one contention made during a panel featuring leaders in the mortgage servicing profession held at HW Annual in Frisco, Texas this week.

“We are talking about a large number of forbearance exits, between 15,000-to-20,000 a day,” said Karthik Kumar, global head of mortgage practice at TCS. “CFPB has given clear guidance saying [servicers must be] proactive, and if you feel unprepared, it’s unacceptable. The onus gets back to the servicer.”

While the pandemic has created a uniquely difficult series of circumstances for servicers to face, the true difficulty of the current moment stems more from the pandemic’s extremely broad area of effect, as opposed to the specific kinds of problems that are often created by other disasters on smaller scales. This is according to Michael Keaton, chief servicing officer of Shellpoint Mortgage Servicing.

“No matter where you are on the spectrum, whether you’re a mortgage servicer, you provide services or activities to a mortgage servicer, we’ve experienced COVID before in a lot of small ways,” Keaton said. “Every time there is a FEMA-type event, in some ways, that’s kind of a miniature version of what we’re doing today. The difference is now that instead of it being a hurricane that hit the Texas coast or California wildfires, it’s a pandemic that affects all 50 states simultaneously.”

Servicing professionals are largely up to meeting the challenge, so long as they have the proper support from their institutions as well as from regulators, Keaton said.

Additionally, the importance of preparing for many simultaneous forbearance exits will be key for mortgage servicers in the near future. That means strengthening the technological infrastructure and training employees, said Uday Devalla, chief technology officer of Sagent.

Still, there are risks all over, according to Courtney Thompson, founder of Consigliera.

“Every time these forbearances naturally ended, because one of these extensions that we’ve been waiting for didn’t occur, in the newspaper, [certain servicers] would say ’70 trillion COVID consumers are out of forbearance, clearly the market is fine!’ And that’s not actually the case,” Thompson explained. “So, despite the fact that I think that we can say that we’re not headed into a nationwide financial crisis, I do think that we are headed into a loss mitigation crisis [and] into a foreclosure crisis.”

Forbearance was far from an ideal solution in answering the needs of certain consumers in the wake of the pandemic, Thompson says. With a pronounced volume of consumers who are delinquent and without a more viable solution, many have had to try to change their situations in other ways up to and including wholesale career changes which, in turn, changes their financial situations compared with the beginning of the pandemic.

“Enough has changed there that it’ll be really, really interesting to see what the delinquency event is here, and how the industry moves not just through this initial loss mitigation wave,” Thompson said. “But [also], what really happens in January and in February when foreclosure is allowed by the CFPB again, and how servicers address that.”

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