How Real-Time Policymaking Drives Mortgage Innovation

This article originally appeared in DSNews & Mortgage Point Magazine’s June edition

Remember April 2020? I do. I was one month into my Sagent CEO role. It was all pandemic panic and parabolic unemployment charts as lockdowns kept people at home. Unemployment spiked from 3.5% to 14.8%, and a crucial bright spot was the CARES Act – which ultimately helped 7.8 million people keep their homes. Sagent’s mortgage modernization reset began in that down cycle, just as real-time policymaking concurrently reset how innovation must work across all cycles.

And make no mistake: That real-time chaos wasn’t a one-off, it’s the state of play – whether it’s today’s inflation fight and bank crisis or tomorrow’s recession. So let’s look at what it means to power $13 trillion in outstanding U.S. mortgage balances in this truly real-time era. 

Real-Time Compliance Is The Root Of Innovation 

You’ll note I said Real-Time Policymaking above. 

Some call it pandemic policymaking. Others call it emergency policymaking. 

But we should all call it real-time policymaking. 

That’s what’s required for regulators to maintain stability in today’s markets, and if the pandemic only partially convinced you, this year’s bank panic should finish the job. 

Bank runs used to take weeks or months, now we know they take hours. 

During the 2020 pandemic and 2023 bank crisis, real-time policymaking brought order to chaos and prevented systemic breakdowns.

This year, policymaking didn’t (and shouldn’t) stop people from moving their money. But it did prevent far worse outcomes as the U.S. racked up 3 of the 4 biggest bank failures ever. 

State regulators, the Fed, Treasury, and especially the FDIC engaged real-time to find help for, then ultimately seize and quickly sell First Republic, Silicon Valley Bank, and Signature Bank to stem contagion.

In 2020, U.S. public safety lockdowns began March 15, and the CARES Act was signed into law by March 27.

Why does this kind of real-time policymaking set the tone for how innovation must work? 

Because servicer compliance – as well as performing for customers and investors – is only as good as software that can handle real-time policy changes. 

When CARES forbearances and other hardship relief became effective, Sagent customers were ready on day one because they weren’t coding for each compliance nuance CARES homeowner hardship relief enabled – they were configuring for it in real time. 

This meant being able to offer forbearances, payment deferrals/partial claims, and extended-term modifications to struggling homeowners immediately – and not missing a beat on current and long-tail compliance.

Using Real-Time Policymaking To Speed Innovation

As I said, CARES policy being made in real-time wasn’t a one-off, it’s now the state of play. 

This is a good thing because faster policy drives faster innovation.

Effective July 2023, FHFA has doubled down on CARES payment deferrals.

Are Sagent servicing customers ready? Of course. But they also ask questions like: 

“Yea, but how do I handle customer and investor needs – and compliance – if FHFA’s newly expanded deferral policy is reversed again suddenly after November 2024?”

This is what I meant by ‘long-tail compliance’ above. 

It’s not about one change like FHFA just made. It’s about keeping servicers ready for constant real-time changes, and how each change impacts customer, investor, and compliance processes today and tomorrow. 

On a related note, we’re also now exploring huge policy challenges like how HUD and servicers can solve for FHA borrower hardships if the inflation fight leads to recession (more below).

This is a hot topic because Ginnie Mae pool rules make HUD hardship solutions more limited than FHFA solutions.

I love questions and explorations like this because it forces us to speed innovation to meet ALL eventualities in a real-time policy era across ALL regulators, GSEs, and investors. 

And the faster markets get each year, the more real-time policymaking is the norm. 

Inflation & Recession Impact On Policy & Innovation

To see how the market might impact homeowners, servicers, and policy later In 2023, consider these MBA stats:

• Of all IMB-serviced loans in forbearance, 59% are Ginnie Mae loans, up from 43% in July 2020.
  
• Of all Depository-serviced loans in forbearance, 38% are Ginnie Mae loans, up from 30% in July 2020. 

This implies hardships are growing on FHA loans, and they could grow further if the Fed’s inflation fight leads to recession. 

Inflation has dropped as the Fed hiked rates 10 times in the last 14 months.  

CPI is down to 4.9% from a June 2022 peak of 8.9%, and Core PCE is down to 4.6% from a September 2022 peak of 5.2%.

But the Fed’s 2% target is a ways off, and the rate hikes haven’t fully hit the economy yet. 

If it’s a hard landing, FHA borrower strain must be addressed, and as noted above, servicers, regulators, and fintech firms like Sagent are exploring solutions now.

This level of coordination in our ecosystem says a lot about how far we’ve come. 

Regulators understand the value of modern fintech. 

And fintech innovation leaders like Sagent remain synced with regulators to enable servicers to meet any and all market challenges.

Other fintech firms short on innovation, market, or policy expertise get terrified by each market and policy ‘emergency’.

But as we’ve said, it’s not emergency policymaking.

It’s time to embrace real-time policymaking and its role in driving innovation. 

Sagent is proud to forge this path with and for our ecosystem. 

This article originally appeared in DSNews & Mortgage Point Magazine’s June edition