PERSON OF THE WEEK: The COVID-19 pandemic that began in February 2020 resulted in an unusual, intense “boom” in home sales that the housing market has never witnessed in the past.
Since then, the impact of the pandemic has essentially faded, and the housing market has seen significant volatility: interest rates have skyrocketed, resulting in many homeowners becoming “rate-locked” into their current low-rate mortgages and homes; home prices have hit record highs due to lack of inventory; and affordability has eroded for first time homebuyers.
Meanwhile, mortgage performance has generally remained strong, with mortgage delinquencies and foreclosures at historic lows. However, there has been a slight uptick in delinquencies and foreclosures so far this year, as borrowers have faced higher monthly mortgage payments and rising property taxes, among other rising costs.
Also impacting delinquencies and foreclosures has been a rise in natural disasters such as floods and tornadoes.
On top of these rising trends, there is the recent downturn in the labor market, which doesn’t appear to be as hot as it was during the last year. Will increased layoffs impact loan performance in 2024 and 2025? That remains to be seen – but mortgage servicers must prepare for the possibility that delinquencies and foreclosures will soon start to rise.
To learn more about how this unusual economic cycle could impact loan performance and what servicers can do to get ready, MortgageOrb interviewed Jane Mason, CEO of Clarifire.
Q: What lingering effects, if any, has the COVID pandemic had on homebuyers and servicers involving delinquencies, defaults or foreclosures?
Mason: The impact of the COVID pandemic is still quite palpable across the housing market. Despite widespread support in the form of forbearance and government relief programs, many homeowners continue to struggle with their mortgage payments, especially those who were already financially vulnerable before the pandemic. The fact that wages haven’t kept pace with inflation is another factor, which has led to a small but steady increase in early-stage defaults.
For most servicers, addressing this scenario requires pivoting towards more nuanced, personalized customer engagement strategies. The pandemic taught us how critically important proactive responsiveness and flexibility is for servicers that hope to minimize default risk. For this reason, smart digital platforms with self-service capabilities have become table stakes in today’s environment. In addition to automating loss mitigation processes and requests for assistance of many kinds more efficiently, these tools help establish clear lines of communication and processes that play a crucial role in educating borrowers about their options before they begin missing payments. When needed, automated approvals for optimized outcomes are available.
Q: Do you expect increases in delinquencies, defaults or foreclosures this year as a result of higher monthly mortgage payments due to increasing homeowners insurance costs and rising property taxes?
Mason: I expect we will see delinquencies and defaults rise this year, and higher insurance premiums and property taxes will be among the reasons why. The rising frequency and severity of natural disasters has already caused insurance premiums to spike nationwide. In some areas that have been particularly hard-hit by natural disasters, such as parts of California and Florida, homeowners are seeing their mortgage payments rise by 40% or more. Property taxes also jumped nearly 7% nationwide, according to ATTOM’s latest research. The full impact of these trends on defaults may not yet be fully realized, but it’s definitely on the horizon.
It’s important to remember that many recent first-time homeowners who got into the market when rates were near all-time lows are now stretched very thin. Many borrowers simply can’t handle a jump in their mortgage payments of several hundred dollars or more. Servicers need to adapt to this evolving scenario if they hope to keep as many people in their homes as possible and maintain the financial health of their portfolios.
Q: The Weather Company and Atmospheric G2 predict the 2024 Atlantic hurricane season will be one of the most active on record. With 11 hurricanes forecast from June 1 to November 30, how should mortgage servicers use automation differently this year than previous years?
Mason: Being in Tampa, the coming hurricane season is very much on everyone’s minds here. In the past, servicers might have relied on standard automated responses and basic processing capabilities to help process borrower requests for assistance following a disaster. Most, however, will need to leverage automation more dynamically than they have in the past.
For example, most servicers will need to scale automated workflows to bulk process requests for assistance more efficiently rather than handling requests on a case-by-case basis, which can be too slow in the chaos that typically follows a major event. Automated bulk processing capabilities enable servicers to quickly assess and approve relief measures for large groups of affected borrowers simultaneously, which significantly speeds the relief process.
Additionally, a platform that integrates communications and real-time data sharing between preferred partners—like appraisal companies that offer virtual appraisals and property preservation and insurance companies—with automated workflows provide a seamless and transparent relief process. This includes updating borrowers on the status of their requests and coordinating with external agencies like FEMA, HUD housing counselors, and insurance providers.
An existing ecosystem where all parties are informed and can act swiftly in synch creates an integrated approach, which is better than the single point systems and processes servicers relied on in the past.
Q: How can emerging technologies help to offset further loss mitigation and compliance challenges servicers may face as they relate to natural disasters and higher defaults?
Mason: Today’s emerging technologies and providers that have invested in ongoing modernization can completely transform how servicers handle the dual challenge of preparing for natural disasters and higher default rates. For instance, AI and machine learning tools can enhance a servicer’s risk assessment processes by analyzing vast amounts of data and predicting which areas of their portfolio are most at risk from natural disasters. This not only speeds up the claims process, but also reduce instances of fraud that often appear when there are high numbers of claims.
Additionally, modern robotics process automation allows servicers to handle the types of routine, rule-based tasks that often soar during periods of high defaults and disasters and drain staff resources. Quite frankly, it still all starts with process automation. However, RPA and AI must have a foundation of efficient processes in order to prove they are effective.
Q: How can mortgage servicers and subservicers use technology to either help generate profits or save costs?
Mason: That’s a huge question right now. According to the MBA’s most recent independent mortgage banker surveys, servicing costs continue to rise as profitability declines. To turn this situation around, IMBs should be leaning on workflow automation technologies that can unify their operations into one cohesive, smart, and collaborative system. This type of technology goes beyond simply automating each individual process. Instead it provides an enterprise-wide solution and critical visibility that powers efficiencies between different departments and back office systems.
By streamlining and integrating all business operations, workflow automation maximizes results and accountability, improving both a company’s bottom line and the level of service they deliver. One key thing to remember is that for subservicers, having reliable, auditable and real-time workflow automation is critical to reaping the benefits of lower costs and faster resolutions.
Q: What new ways are mortgage servicers using technology to improve the overall homeowner experience?
Mason: Improving the borrower experience should be a never-ending goal, but it’s particularly challenging when most servicers are still navigating forbearance exits while helping a growing number of borrowers experiencing financial challenges.
However, forward-thinking servicers are finding a way to get it done by continuously improving both digital and human interactions and adopting robust, digital self-service options. For most, the key is adopting a flexible, workflow automation application that enables servicers to address customer needs swiftly and thoroughly, while also ensuring homeowners can obtain the help they need independently whenever possible. Such technologies provide borrowers with real-time 24/7 access to services and information while making sure the servicer’s teams have immediate access to all the data they need to swiftly resolve any issues or questions.
New ways of offering automation, such as leveraging AI transcription and integrating dialers from the first customer touchpoint that trigger automated workflows and create optimized results for the borrower, is an imperative for servicing operations. By employing a centralized, secure, cloud-based application that is integrated into all servicing processes and provides automated workflows, mortgage servicers can offer borrowers a seamless, no-touch processing experience that speeds up service delivery. Additionally, the use of advanced APIs enables integrations between various services and systems, further embedding the customer experience across all points of contact and creating smoother workflows.
Ultimately, the goal for mortgage servicers is to provide a robust borrower experience that not only meets but exceeds customer expectations. By making the shift to a more advanced automated approach, servicers can significantly improve borrower satisfaction and engagement while reducing the costs per loan, making the mortgage servicing experience better for their customers across the board.