Despite growing (albeit cautious) optimism as the economy improves and COVID vaccinations climb, mortgage servicers are focused on preparing for what may come in the next six months as forbearances keep dropping, policy relief extends into year two, and an “unprepared is unacceptable” regulator stance on servicer care plays out.
On May 12, Sagent set out to answer these pressing questions in a webinar sponsored by National Mortgage News. Entitled “What Regulators Expect from Mortgage Servicers in 2021”, the webinar included panelists Candace Russell (Vice President- Post Sale, Carrington Mortgage Services), Cindy Walton (Director of Products, Sagent), and Matthew Tully (Chief Compliance Officer and VP of Agency Affairs, Sagent).
In case you missed the webinar, we’ve put together a Q&A-style recap* of the webinar that offers insight into where we’re going from a mortgage policy perspective, as well as what that means for servicers and the technology providers who empower them to serve their borrowers.
1. How did servicers adapt to comply with the CARES Act alongside a rapid transition to working from home?
Since The Great Recession, we’ve gotten better at quickly developing policies to protect homeowners, insulate the housing industry from economic instability, and promote responsible lending. The CARES Act was put in place quickly last Spring, requiring servicers to adapt at a moment’s notice.
Candace, can you talk about the early days of the pandemic and what it was like to have to react so quickly to the CARES Act rollout? What was your team at Carrington doing to ensure you complied with these new policies?
Candace Russell: I’d love to talk about that. But first, the big question we’re trying to answer today is, “What do regulatory agents want to see over the next six months?” And the answer is compliance, compliance, and compliance.
Regulators have made it very clear that compliance is what they’re looking for. And since the start of the pandemic, the challenge of complying with the CARES Act lies in its brevity.
The succinct nature of the CARES Act has been both a blessing and a curse. It’s one thing to implement rules that have 100 pages and answer every question you thought you might have. It’s another thing entirely to have a four-paragraph-long policy (Figure 1) informing the billion-dollar mortgage servicing industry (a trillion-dollar industry if you include originations into account).
Everybody wants to do the right thing. Nobody wants to get this wrong. So, we needed a deeper interpretation of the policy.
And the mortgage servicing industry did a pretty great job of coming together and saying, “Okay, this is not a time for competition or secrets. This is everybody on the floor, and we want to help as many people as we can.”
And we’ve gotten as much feedback as we can from regulators, and we continue to refine our understanding of policies as more questions arise as we move through this process and get deeper into forbearance exits and help borrowers with unique exit situations.
Along the way, servicers have relied heavily on their technology systems to guide them through it and ensure compliance with new policies, using automation as much as possible to make sure everything is done by the book.
And to make things even more complicated, we abruptly moved to a work-from-home environment in a matter of two weeks, and the implementation of the CARES Act started immediately after that. But by the time we adapted to working from home, Sagent had already turned on a dime to get their systems ready to help servicers comply with the CARES Act.
With the help of our technology vendors, we were able to make this quick shift happen, and I think that across the industry, we would be experiencing far more hardships if tech companies hadn’t been able to adapt so quickly to help servicers act quickly without compromising compliance.
2. How have servicing technology teams adapted to pandemic-era challenges and helped servicers provide quick hardship relief to their borrowers?
Sagent worked hard to move quickly to get those new requirements, new reporting codes, credit bureau protection, all of those things into the system to get it ready for our clients.
Cindy, can you talk about all of this through the product lens and explain how default management platforms like Tempo are helping servicers in the loss mit space? What has your team’s product strategy been to guarantee that our products are well-equipped to help our clients be successful while navigating a sudden influx of millions of homeowners taking advantage of relief provided by new policies?
Cindy Walton: As we all know, the shift to remote work was quick and chaotic. People are suddenly taking Zoom meetings with kids running around in the background or developing makeshift ‘home offices’ at their kitchen tables, thinking remote work would just be for a couple of weeks.
But over time, we were all able to adapt, and interestingly enough, all of these challenges put our team in the perfect headspace to help servicers and their borrowers through this crisis.
We knew firsthand how hard it was to shift your entire life and work to function within the confines of your home, and so we knew how important it was to give borrowers an easy way to self-service or get guidance from real humans on-demand, from any device at any time.
And, on the other side of things, customer service call centers are typically very environment-driven and influenced by the community created within the workspace, and I would imagine the same is typically true for sales-heavy areas like mortgage origination.
Companies had to figure out how to replicate that environment at home and how to encourage employees to help borrowers with a sense of urgency that is still measured and careful, to make sure employees are getting adequate training and checking all the boxes to ensure borrower hardships are processed in a manner that is at once quick and compliant.
At Sagent, we made that pivot in a manner of two weeks, and we were pleasantly surprised to discover that work from home was working really well in spite of the confusing and abrupt transition. We all got to participate in a grand experiment, and one of the key things that got us through was shifting how we measure performance.
As we look ahead and think about which roles absolutely must be in-office and which roles can be more flexible, we’re also figuring out how to manage those roles in different ways. Like many companies, we’re measuring success by relying more on key performance indicators (KPIs).
I often say that business leaders have to decide if they care more about the number of bodies in the office or their key production indicators.
That will dictate your post-pandemic approach and hopefully lead more companies to embrace a hybrid model that hinges on this management idea to “trust, but validate”.
Trust that your employees will do the work, and do the work well, in whatever environment they work from, even if it’s full-time remote work. But also validate and evaluate their performance using KPIs that are concrete and tied to the strategic initiatives of the organization. Companies that can embrace this model will likely be surprised to see how well it works.
3. What has surprised you about borrower behavior as the pandemic has progressed and some borrowers have begun to exit forbearance?
When it comes to forbearance exits, some borrowers have gone into deferrals or modifications, others never stopped paying their mortgage while on forbearance, and others still have exited with no plan in place.
One of the quirks, again, of the brevity of the CARES Act, is that after six months in forbearance, there’s not an auto-extension of the forbearance period if the borrower doesn’t explicitly request that, so you also have borrowers ‘ghosting servicers’ and not taking advantage of the additional six months, and so they’re off forbearance and in this no man’s land.
Candace, what borrower behavior has surprised you in this process and created challenges for Carrington?
Candace: The first thing that surprised me was to look at that forbearance volume chart and see that huge spike last Spring (see Figure 2).
Seeing that huge spike from historic lows, you know if you’re any kind of economist or analytics person that a jump like that is scary, because you don’t know how long it’s going to continue and you don’t know if it’s going to keep going up.
And I think we all know that most people don’t think about their mortgage (especially their servicer) very often, if at all. At the start of all this, a lot of states got on the news and said, “Call your bank, call your servicer, here’s how you figure out who that is.” And that really drove volume.
People listened and said, “Okay,I’m worried about this, let’s give my servicer a call just in case. I’m going to keep paying my mortgage but I want that flag on my loan just in case something happens.”
That is very interesting behavior that I don’t think anybody writing the CARES Act or any of us in the industry ever would have anticipated, and it’s very different behavior from The Great Recession. We didn’t have “just in case” relief to fall back on in the Recession.
People are worried and want to utilize that safety net just in case, but they’re still trying to pay their mortgage. I think it is actually a really good sign of growing maturity with borrowers being proactive instead of reactive.
But then we also have those borrowers who are exiting forbearance without any plan (Figure 3).
I think those borrowers might be the population of people — especially the ones that only started during COVID and weren’t previously delinquent — that we may find to be the proverbial ostriches with their heads in the sand like we saw in The Great Recession.
These are likely the borrowers who are going to wait until they get their legal paper and need that panic in order to act. And while I don’t think any of us want that for any of our customers, some people need the urgency that legal action inspires in order to be able to focus on that as a topic. And having extended foreclosure moratoriums and forbearance extension can make borrowers think, “I’ll take care of that later.”
It’s not a bad thing, it’s not a good thing, it’s just a thing.
4. How can servicers prepare for the next six months?
Looking forward, how are servicers preparing for what comes next? What do you expect to see happen with forbearances and loss mit in the next six months?
Matt: Part of the answer to that question lies in how long people will be allowed to stay on forbearance. If you look at the timeline (see Figure 4), if you’re a borrower who went on forbearance in April 2020 and you stay on it for a full 18-months, you’re coming up on the end of forbearance in September 2021.
With the CFPB’s foreclosure stay through the end of 2021, I don’t think anyone in the industry really expects foreclosure activity to really start until 2022, so it seems like we will need some time of additional policy activity just to fill that gap.
And as forbearance periods continue to grow and you have more borrowers who haven’t paid a mortgage payment in 18 months, that means major loan modifications to both rate and term may be necessary to keep borrowers in their homes.
The CFPB has stated they want to avoid foreclosures if at all possible, and with all of these borrowers in aging forbearance, it’s hard to imagine a path forward without more guidance from the CFPB and policymakers.
Candace: When it comes to what we’re facing right now, we know that those forbearance extensions are probably going to last longer than expected, and so you have to be planning for that just in case.
And we’re planning in these six-month increments, trying to make sure we have enough staff, and that we have the right staff in the right places. We all just want a pipeline that makes sense to work on, one that’s not going to overwhelm us, our vendors, our attorney networks, and localities, including courts.
We all know that we have housing shortages, but we have to remember what REO does to local real estate, even in a good market, REO tends to be slightly lower valued, depending on if you’ve got a really good marketing plan. So even if it’s a really hot market where we’ve got a shortage, we would much prefer that many of these exits be equity-based exits that will help stabilize neighborhoods.
5. How are default mgmt. platform providers preparing to help servicers guide millions of borrowers out of forbearance/into loss mit plans?
Looking at forbearance data, we obviously see that aforementioned spike in early April 2020, followed by the peak in June. But we’ve slowly worked our way back down, and today we’re at 4.36% of mortgage loans in forbearance, a nice 11-point basis drop (Figure 2).
That’s good news, but the bad news is that nearly 50% of that population hasn’t made a mortgage payment in 12 months (see Figure 5), and we have to be ready for what comes next.
Default management technology will play a crucial role as servicers guide these borrowers out of forbearance with loss mit plans that fit their situations. Cindy, how is your team making sure that Tempo is prepared to handle the volume and complexity that servicers are going to have to deal with as they try to keep these borrowers in their homes?
Cindy: We’ve done several things to prepare at Sagent. We have a loss mit borrower portal experience where borrowers can go through an online intake process, and that data is synced into Tempo. From there, we focus on making sure we can expedite the decisioning process to get borrowers quick resolution. We have also built programs into our system based on the VA, USDA, FHA rules; we’ve connected SMDU; and we’re going live with Freddie Mac Resolve, which is a new loss mit platform from Freddie.
All of these changes are being done to get ready for that influx of loss mitigation.
Our core focus is on what we can do to help the borrower as quickly as possible.
We want to provide a way where they can quickly get the help or resolution that they need, so we’ve focused a lot on things like borrower self-service, which has the added benefit of making sure that servicers don’t have to go out and hire a ton of people to handle the volume of customer requests.
Servicers can rely on a product that is pre-built, configured to their organization’s unique needs, and up-to-date with the latest policy and regulatory developments to ensure compliance.
With such a quick and nimble system, servicers can make changes on the fly and streamline their efficiency so borrowers are able to get hardship relief quickly.
The borrowers, first and foremost, get resolution; the servicers get a lower-cost, compliant loss mit workflow; and Sagent makes sure that all of this gets done quickly so that nobody has to wait or worry about what’s going to hit next in the industry.
As 2021 continues and COVID-driven forbearances mature, technology will again play a critical role in helping servicers and their borrowers navigate what comes next. In a tumultuous servicing climate, it will be the servicers with powerful servicing technology who will emerge from COVID with stable, happy borrowers and a competitive edge in the market.
A huge thank you to our panelists, Candace, Matt, and Cindy, for an informative and thought-provoking webinar. If you have further questions about what comes next and how to prepare, feel free to reach out to our experts directly or fill out the form below.
Click here to watch the full webinar on-demand.
*Editor’s Note: Panelist answers have been edited for clarity and brevity. While they aren’t direct quotes, we have tried to paraphrase the panelists’ answers as accurately as possible to preserve the intended meaning.