After nearly 40 million people became unemployed by May because of COVID-19, the housing industry, borrowers and the Federal Reserve quickly realized that without ample aid, things could quickly turn sour. However, servicers leveraged the lessons learned from the last recession to help avoid a catastrophe, synergistic technology and a blanket of forbearance large enough to cover the nation kept mortgage servicers busy, but prepared.
By mid-May, 4.7 million mortgages were in some sort of forbearance strategy, representing 8.8% of outstanding home loans.
For many mortgage servicers, those numbers are already falling. By mid-October, Black Knight estimated 36% (around 2.3 million) of those who entered forbearance have since exited and continued to perform.
But to really grasp what servicing will look like in 2021, Marina Walsh, Mortgage Bankers Association vice president of industry analysis, said not to focus on the population that continued to pay while in forbearance, but on the borrowers in serious delinquency.
“There’s this whole group of seriously delinquent plans that really had no place else to go,” Walsh said. “So, you’re talking about 90-plus days delinquent. And they’re just hanging out there because we have a foreclosure moratorium in place right now, but what happens when those moratoriums expire?”
Following previous natural disaster recovery patterns, mortgage delinquencies are not expected to return to pre-pandemic levels until March 2022.
“If things stay status quo, if the moratorium really does end at the end of the year, and the CARES Act is not extended, then we have a situation where there are potentially more borrowers who have to be put into loss mitigation,” Walsh said.
But don’t raise the alarm just yet – with low housing inventory Walsh said it will be in mortgage servicers’ best interest to keep borrowers where they are, and unlike 2008, borrowers now have the most equity available to them in history.
According to Walsh, most of it will be up to the policy that comes from Fannie Mae, Freddie Mac, VA and the FHA.
Especially the FHA and VA, Walsh said. The pandemic pushed the highest rate for delinquency among FHA loans that the MBA had seen – up to 15.65%.
“Even back in February, servicers were concerned about their FHA portfolio,” Walsh said. “We had a situation where the FICO scores were dropping, DTI was rising, LTV was going up, and FHA loans were changing before we even had a pandemic. But the book losses are substantially higher, if you just look at unreimbursed vendor costs, they are significantly higher for FHA versus conventional. So I think that’s really the key thing is how bad is that going to get? Is it going to get worse?”
Bob Walters, Rocket Companies president and chief operating officer, said that in times of both crisis and peace, what borrowers really want is visibility and control.
“There’s a profound difference between people who are really changing the way that consumers interact with their servicer versus those who are not,” Walters said. “Whether it be escrows, early stage default or late stage default, there are so many ways to employ technology both consumer facing and behind the scenes to make it more efficient, effective and done, quite frankly, pleasant.”
Walters pressed the importance of adapting the technology to the situation – easy interfaces for easy problems, and more synergy in human interaction for the complicated ones. If somebody can sign up for forbearance from their bathtub on a Saturday, they need to also be able to seamlessly call and receive updates if loss mitigation is on the radar.
“Servicers need to build a solution for clients that faces retention, meaning you want to stay in your home and then move to non-retention, meaning I can’t afford my home anymore and how do we deal with that with grace?” Walters said.
“Because servicing, quite frankly, is done from a technology standpoint that’s pretty antiquated,” he said. “Our industry is on the precipice of really changing. In 10 years, our industry won’t look anything like today.”