How Smart Fintech Powers Lenders through K-Shaped Economy In 2021

This post adapted from a HousingWire article by Sagent CTO Uday Devalla.

At every turn, 2020 has hit us with unexpected challenges and unprecedented market conditions. The COVID economy has further emphasized the bifurcation of disparate economic realities in America, with millions of Americans relying on CARES Act-enabled forbearance in the face of financial woes, while millions more capitalized on the low-rate environment with refis.

As I detailed this week in HousingWire, we’re in the midst of a K-shaped economic recovery where those doing well pre-pandemic are now doing even better and those struggling pre-pandemic are having an even tougher time making ends meet.

As lenders try to serve both sides of the K-shaped recovery (and with two key housing relief policies with imminent expirations), it’s imperative that lenders lean on a smart finch strategy to help their borrowers, regardless of which side of the K-shaped recovery they are experiencing.

If you haven’t read the full piece in HousingWire yet, here are a few highlights of what I cover in the full piece:

Biden Administration & Housing Policy Implications

With election results certified and Inauguration Day approaching, many speculate about the Biden administration’s impact on housing policy.

Expect leadership changes at the Consumer Financial Protection Bureau. Biden already selected Leandra English to lead his CFPB transition team, and many expect Biden to tap her to lead the agency.

While some fear CFPB leadership changes and what they mean for the mortgage market, Matt Tully, our Chief Compliance Officer and VP of Agency Affairs, doesn’t think lenders need to be too worried. As Tully explained to MPA last month, “I don’t necessarily think there’s a big push at this moment to broadly rewrite the rules.”

Tully goes on to predict that the Biden presidency will mean more of a reversion to previous regulatory standards (with an emphasis on enforcement) rather than a whole new set of regulatory demands that lenders must adjust to.

On the policy front, further COVID relief and other housing-related policy development hinge on the outcome of the two Senate runoff races in Georgia on January 5.

For now, lenders must keep an eye on existing COVID housing relief policy expirations, with the foreclosure moratorium expiring on January 31 and the long-term forbearance provided by the CARES Act expiring in April.

Servicers are prepping to deal with both expirations and a wave of borrowers headed towards default, and smart technology should be the cornerstone of that prep. But before I get into that, I want to revisit the K-shaped economic recovery.

For more on how the Biden administration will impact housing policy and what to expect out of the CFPB, FHFA, and GSEs, read the full piece in HousingWire here.

The Two Sides of the K-Shaped Recovery

As I mentioned earlier, the economic recovery from the pandemic is proving to be a K-shaped recovery, rather than the expected V- or U-shaped recovery.

In a K-shaped recovery, those doing well pre-pandemic are doing even better during the recovery, and those who were struggling before the pandemic are doing even worse now.

As I noted in HousingWire:

Research from Harvard economist Raj Chetty shows the top quarter of income earners have completely recovered the job losses experienced earlier in the year.

“Meanwhile, employment for the bottom quarter of earners (those making less than $27k per year) is still down 21% compared to early 2020. And PEW reports that 56% of lower-income adults who previously lost their job due to COVID remain unemployed at the end of 3Q20.”

Servicers have to help borrowers doing well and borrowers struggling. Let’s look at how smart fintech helps servicers do just that.

Tech-Powered Customer Care for Opportunistic Borrowers

For borrowers on the upward slope of the K-shaped recovery, lenders should focus on building a strategic fintech stack with a consumer-first sensibility, similar to what we’ve been seeing on the origination side of the business.

The name of the game is customer experience across the lifetime of the loan cycle, not just in the origination portion. We’re moving towards the convergence of origination and servicing technology for this very reason — because customer value increases as the customer moves deeper into the loan lifecycle (see Figure 1 below).

Figure 1

As I noted in HousingWire, “servicing comprises the vast majority of a customer’s borrowing lifecycle, with comparatively little time spent in the origination process. And here’s the convergence part: if lenders get servicing engagement right, it leads to more new originations — instead of losing 4 of 5 refinances like they do today.”

I’ve said it before, and I’ll say it again: if originators are the finders of customers, servicers have to be their keepers.

Borrowers need ongoing support whether they’re looking to refi, sell their home, or manage their mortgage payments.

Servicers must answer all of these demands proactively within a singular, intuitive customer platform that includes:

• Customer care, including payment processing, planning, and general engagement
• Home search and valuation, which leads to home buying and selling (and keeps customers off portals and in your own environment)
• Home buying and selling, which leads to new loans
• Home improvement and refinancing
• Cross-selling of other loans and products if your org provides non-mortgage products

These features cater to customers who want to capitalize on their position on the upside of the K-shaped recovery.

Tech-Powered Customer Care for Struggling Borrowers

For borrowers struggling in the COVID economy, compassionate customer care is even more essential, and it’s virtually impossible to manage this volume of hardship requests without the right technology.

Though MBA data shows forbearance numbers slowly ticking down week-over-week, as of December 6, there were still 2.7 million borrowers in forbearance (see Figure 2).

Figure 2

Of these borrowers, 78.7% have asked for extensions as of December 6, taking advantage of the second optional 180-day forbearance period that borrowers can request if needed as provided by the CARES Act (see Figure 3).

Figure 3

To make matter more complicated, servicers are also dealing with droves of borrowers who did not exit OR extend their forbearances past the first 180-day period allowed under the CARES Act, and have also not put a loss mitigation plan into place.

Servicers are reaching out to these borrowers to help them extend their forbearances (because the borrower must request an extension explicitly), but borrowers aren’t answering. As the millennials might say, these borrowers are ‘ghosting’ their servicers (see Matt Tully’s blog on the topic for more on this problem).

As I explained in HousingWire:

“To engage these borrowers, servicers’ consumer-facing tech should:

• Offer easy “bank-on-your-phone” customer care and self-service
• Provide immediate requesting and processing of forbearance exit strategies
• Seamlessly integrate into default decisioning systems
• Keep borrowers informed of forbearance and/or loss mit options and status.”

These features cater to customers looking for help on the downside of the K-shaped recovery.

Lender Tech Must Power Borrower Needs Across the Economic Spectrum

Ultimately, a smart fintech strategy does three things for lender-servicers:

1. Protects strained homeowners — and servicers — as they cope with COVID’s economic challenges.
   
2. Powers opportunities for well-positioned homeowners while driving retention for servicers.
   
3. Ensures lenders adapt and comply with a changing regulatory environment in real time.

Customer care, portfolio retention, and compliance are the three pillars of a smart fintech strategy. Together they transform ‘customer for life’ from tagline to reality, no matter what’s happening in the mortgage market or policy landscape.