Mortgage Servicer Pro Tips as Regulators Slowly Allow Foreclosures

I’ve said it here on the blog and we continue to see it play out in real time: the housing market and economy are finally pivoting from COVID response to COVID recovery.

The Biden administration has signaled an end to foreclosure moratoriums with the July 31 deadline, and the CFPB has opened the door to allow foreclosures to begin in certain circumstances.

Let’s break down what’s happening with mortgage forbearances ahead of the foreclosure moratorium expiration.

Forbearance Volume Down to 3.48% of Servicer Portfolios

Per the Mortgage Bankers Association’s latest forbearance data, forbearance volume is again (for the 21st straight week) down week-over-week to 3.48%, a drop of two basis points from last week’s 3.50%.

This means roughly 1.74 million borrowers are still in forbearance.

Forbearance Re-entries and Requests Rising

But we’re not quite out of the woods yet, despite continued declines in overall volume.

According to the latest forbearance data from the MBA:

• Forbearance re-entries have climbed to 7.00% (up from 6.76% last week)
• Requests for new forbearances increased to 0.04% of servicing portfolio volume (up from 0.03%) last week.

This is ahead of the September 30 deadline from the Biden administration for homeowners to request new forbearances.

Of the 1.74 million borrowers still in forbearance, that means roughly 121,800 homeowners have re-entered forbearance this week and 20,000 homeowners have put in new forbearance requests (according to my quick back-of-the-napkin math).

With all the concern about the Delta variant, I have to wonder if that is now starting to show up in the numbers we are seeing.  We need a few more weeks to really understand if there is a trend here or not, but it’s certainly something worth paying attention to.

FHA Borrowers Are Hardest Hit

Of the population of borrowers currently in forbearance, FHA borrowers are the population at the highest risk. 

It makes sense that these borrowers are struggling the most: by and large, these borrowers are a lower credit profile than conventional (GSE) borrowers, tend to be first-time homeowners, and have less equity skin in the game (FHA only requires a 3.5% down payment). 

Streamlined Loss Mit Decisioning

With the July 23 White House announcement, the administration has set a metric of a ~25% payment reduction as the standard for how borrowers can get back to performing.

Alignment of HUD, VA, and USDA’s waterfall with the GSE waterfalls will help make the process of decisioning more straightforward for servicers.  Up until now, each has had their own unique waterfall (and in the case of VA, really no waterfall at all), requiring specific expertise to deal with each.

Since the start of the pandemic, Sagent’s default management platform, Tempo, has owned the decisioning process so servicers can focus on what matters — helping their struggling borrowers — while reducing their compliance risk.

We power fast homeowner hardship self-serve and on-demand configurability to ensure servicer compliance with real-time policy changes by letting lenders simply reconfigure (instead of re-code) for real-time compliance changes.

The Bottom Line

To underscore my opening point, this is the beginning of the end.  Granted the “end” may not be until sometime in 2022, but we can see how the Biden administration is orienting for the market to revert back to “normal.” Yet to be seen is how the Delta variant may thwart those plans to return to normalcy.

In the meantime, Sagent’s 3 core performing, non-performing, and consumer platforms are keeping servicers in front of all policy and regulatory changes during this unprecedented era.

We’re on standby to talk about how to help you care for borrowers during this final and most critical phase of COVID recovery.