Bracing for the Mortgage Forbearance Endgame


It’s too soon to know for sure just how big of a challenge servicers will be facing with foreclosures and REO a year or so down the road. A number of factors, such as a V-shaped economic recovery or a second wave of COVID-19, could dramatically change the outcome.

But the numbers we’re starting out with are daunting. In June, the unemployment rate was 11.1% (more than 21 million out of work), with more than 3.9 million homeowners (7.8% of all mortgages) in forbearance.

The good news is that many observers now believe a significant number of homeowners in forbearance will be able to successfully exit the program and begin reperforming, with the help of deferrals and/or partial claims.

However, not everyone will be able to make this transition. One worrisome sign: A June 72Point poll sponsored by the National Association of Realtors found that 52% of homeowners are concerned about making their mortgage payments, and 47% said they’ve considered selling their home because they are unable to afford their mortgage payments.

If this is the case, by mid-to-late 2021, a significant number of borrowers – perhaps more than 2 million – will be entering the default cascade: loan modifications, deed-in-lieu and short sales. Unfortunately, after years of steady decline, foreclosures and REO sales will rise sharply, perhaps beginning in late fall or early winter for the 1.3 million borrowers who were in default in February before the pandemic began and who are not covered by the CARES Act.

As was the case in the last mortgage crisis, online auction platforms will play a significant role in the ultimate disposition of REO. In fact, a strong case can be made that online auctions may play an even greater role, given concerns over social distancing, the trend towards remote workforces and the growing acceptance of online transactions and auction-based platforms, in businesses and in our daily lives.

There are some best practices that servicers should consider as they line up their asset management partners in preparation for the coming default wave, as well as some enhancements that can improve the effectiveness of online auctions.

Selecting the right partner

The core metrics are usually the starting point in evaluating a potential auction platform partner. How has the partner performed in the following terms?

  • Execution/pull-through: number of properties sold vs. number of properties brought to auction
  • Sales price-to-reserve ratio: Does the auction platform successfully get bidding to reserve? How much is the platform able to get above established reserve price?
  • Overall timeline: How long does it take to sell a property, and how long does it take to close?

In addition to past performance, servicers should also consider the overall fit. For example, will the auction provider customize its approach to best meet the servicer’s needs, or do they take a one-size-fits-all approach? Likewise, do they have a vested interest in seeing their partners succeed, and not in just moving inventory by selling for the lowest price?


Servicers considering adding auction capacity or interested in benchmarking their current provider might consider a champion/challenger scenario. Recently, our firm accepted such a challenge. We received “aged” second-chance CWCOT files from a large servicer. These files had been active on a competitor’s platform for more than a year (70+ cycles), and none had received offers.

Within a month of their appearance on our auction platform, nearly 40% of the assets had bids. Currently, about half of the bids have been accepted by our client, and the rest are in post-auction negotiations. As a result, we have been added as a second provider for this servicer.

Now is the optimal time to implement a champion-challenger model before the current foreclosure moratoriums end. It would provide a chance to test-drive additional auction partners, motivate current providers and clear the decks of aged inventory before the next wave arrives.

Dual path

Another strategy that we routinely recommend to servicers is the dual-path option, which utilizes both agents and the MLS in conjunction with auction. An asset is initially placed with a realtor and listed on an MLS for 30 days. After that period, it also goes up on the auction platform. We have found that the majority of assets close or go under contract more quickly (usually in 30-45 days) than those using the standard methodology of just assigning REO assets to a realtor without the lift of an auction partnership.

In one recent pilot, 30% of the properties sold at auction, and 70% sold through the retail channel. Interestingly, 62.5% of the retail sales were influenced by the auction. The dual-path strategy provides maximum asset exposure and increased competition while property preservation continues. We believe it provides the best of both workflows.

What sellers should expect

Today, sellers should expect geo-targeted capabilities used to identify potential bidders and heightened marketing execution, which more than doubles exposure to buyers. Sales cycles have been accelerated with time-sensitive property data and technology that evaluate assets individually and enable the seller to set a predefined sale date. If the first cycle of bidding doesn’t produce the reserve sales price, a post-auction, high-touch customer service team can reach out to bidders to gauge interest in the asset and determine if the bidder is willing to increase the bid to reach reserve.

Also, look for a company that can help with title curative services, HOA lien identification and resolution and conveyance preparation, which will further reduce seller costs. These added abilities are especially conducive to increasing profitability in managing larger portfolios, adding fee income and reducing offer negotiation risks.

Today’s uncertain view of what may happen with foreclosure and REO sales volume does afford servicers the time to take the steps needed to be prepared for the worst-case scenario. Selecting the right partner who can deliver enhanced technology, a commitment to excellence in customer service and innovative strategies can help make distressed asset disposition a more promising end game.

Christopher Link is the senior vice president of asset and default management of RealtyBid, a Covius Solution, where he is responsible for all aspects of asset management, auction and title. He can be reached at

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Steve Westfall
Steve Westfall
9 months ago

If a property is auction worthy, it would have sold at the 1st auction…on the county “steps”. Also, and unfortunately, many real estate agents shy away from presenting auction properties because of their lack of knowledge in the auction process. Lastly, a servicer needs boots on the ground to protect the asset. The dual path option helps in this regard but it costs the Realtor thousands in commission when it reverts to the auction.