PERSON OF THE WEEK: The share of mortgages in COVID-19-related forbearance plans continued to fall this past week, decreasing one basis point to 7.20% of all loans, according to the Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey.
As of August 16, about 3.6 million homeowners were in forbearance plans, according to the MBA’s estimates.
The pace at which homeowners exit forbearance plans is largely a function of the job market – which has been recovering gradually. As of the most recent jobs report, the U.S. unemployment rate is at around 10.2%. But with new virus “hot spots” erupting across the U.S. in recent weeks, and schools set to resume in late August or early September, many are bracing for a potential wave of “spreader events” that could lead to new lockdowns and further job losses.
Not good news for the mortgage market.
Mortgage servicers (bless their souls) have made it through the initial onslaught of forbearance requests. Now, they must prepare for the next stage: According to CoreLogic, delinquencies are sharply on the rise, and many borrowers will soon hit 90 days delinquent. Although foreclosure starts are still at pre-crisis levels, they are also expected to rise – likely along with a swelling tide of fresh early-stage delinquencies. A perfect storm, if you will.
So what can the mortgage servicing industry expect, moving forward? And how can mortgage servicers best prepare for what’s to come? To gain some insights, MortgageOrb recently interviewed Jane Mason, CEO of CLARIFIRE, which offers an automated loss mitigation solution.
Q: Based on different research, forbearance claims increased precipitously in April and May, then dropped consistently each week from the end of June through July. However, delinquencies have been rising. The national mortgage delinquency rate jumped by more than 20% from April to May. To what do you attribute the decline in forbearance claims and the increase in delinquencies? What can we expect in the third quarter of this year?
Mason: COVID-19 forbearance relief was – and is – a band-aid for the industry. As the pandemic and the economic consequences have evolved, homeowners are making more conscious decisions about their mortgage payments. Many homebuyers either were not automatically placed in forbearance programs, fell outside of forbearance eligibility based on their corresponding loan investor, personal scenario, or did not experience loss of income. These factors are all contributing to the drop in forbearance claims.
However, reality has set in. As the U.S. again deals with rising cases of COVID-19, unemployment benefits ceasing, foreclosure moratoriums lapsing and companies pursuing further layoffs are, in combination, placing greater demands on liquidity. Meanwhile, new options for bridging COVID-19-related delinquencies continue to arise, including payment deferment, loss mitigation alternatives, and refinance options.
Servicers need to have the plan for the huge influx of requests for extensions and/or permanent solutions. Most of the forbearance plans are now reaching the end. As the remainder of 2020 unfolds, I expect requests for legislative intervention, financial relief, and further payment assistance will continue, which will lead to greater complexities in terms of workout options and the ominous implications.
Q: Do you find independent mortgage bank servicers handle loss mitigation differently than depositories? How does automated workflow help in handling loss mitigation and forbearance claims more efficient?
Mason: Nonbank servicers are relatively new industry participants, and therefore they’re not as encumbered by historical ways of thinking or traditional business processes. Additionally, independent mortgage banks are relieved from the regulatory burdens placed on depositories. Rightly or wrongly so, this frees up non-bank servicers to push the envelope on loss mitigation outcomes and aggressively embrace more innovative approaches to automating default scenarios.
Automation can definitely make loss mitigation and forbearance claims more efficient, but it depends on what type of automation we’re talking about. I can only speak for our solution, but CLARIFIRE goes beyond traditional workflows by providing full automation and bulk processing of like processes and workout underwriting options. It also features an interactive decisioning engine that fully leverages data, creates dynamic views, and completes eligibility determinations while giving consumers access to workout options. In other words, CLARIFIRE places automation at the very center of loss mitigation processes, which enables servicers to handle virtually unlimited volumes of forbearance claims and loss mitigation processes.
Q: You recently announced that the Idaho Housing and Finance Association and Gateway Mortgage are using Clarifire’s automated workflow to help speed their forbearance claim processes and prepare for an increase in mortgage delinquencies and defaults. Is automated workflow taking on more importance today than during the 2008 housing crisis?
Mason: Absolutely. The lessons learned from the last financial crisis, the recovery, and recent natural disaster relief have all significantly contributed to better technology and improved capabilities. The key differences between today’s workflow and workflows from 12 years ago are sophisticated bulk processing, expanded self-service delivery offerings, and greater connectivity to data service providers.
Today’s technologies are not only able to expedite forbearance claims and extensions, they can completely eliminate operational chaos and providing capabilities for automated workout underwriting that includes all of the latest COVID-19 options as well as planning to implement the new ones coming this fall.
For example, CLARIFIRE is designed to help the homeowner identify eligible relief options as well as navigate corresponding processes through to completion. Literally thousands of requests for relief can now be addressed simultaneously while yielding robust and meaningful results.
This wasn’t possible before. By leveraging data and AI, homeowners now have the ability to request, review, and accept available relief options using self-service capabilities at any time of the day or night. With the right technology, errors, delays, and the inability to respond to borrowers are no longer issues.
Q: Healthcare and mortgage servicing have been overloaded during the COVID-19 pandemic for different reasons. Clarifire’s automated workflow technology, however, serves both industries. How are the two industries similar, how are they different and why does automated workflow fit so well in both?
Mason: A process is a process, no matter what the industry. Healthcare providers, patients, mortgage servicers, and homeowners all need access to smart, critical data that is presented to the right person at the right time. In both industries, information and decisioning needs to move forward dynamically, and it must encompass all relevant interactions in a cohesive, results-driven manner. By making the data from systems of record available in real-time, any industry can leverage modern technology to complete complex process automation with ease.
Q: How are mortgage servicers preparing their business operations, including technology and staff, for a wave of delinquencies and loss mitigation as a result of federal programs expiring, a slower than expected economic recovery, and the potential for more hurricanes in the next few months? How is Clarifire preparing for the months ahead?
Mason: Obviously, no two servicers are the same, but the really smart ones are adopting process automation from proven technology partners. Typically, these providers are not the big box servicing platforms, but less traditional and more flexible and innovative providers that have embraced current cutting-edge technologies, and have been helping industry leaders since before the Great Recession by providing data driven decisioning, AI, full automation, and bulk processing. With these tools, servicers will be more prepared for the onslaught of delinquency, regulation, and relief alternatives that are in our future.
Specifically, servicers have been forced to manage huge volumes and velocity of change. They also have to look internally at their default servicing processes and technology in order to survive the tsunami coming towards all of the U.S.
What’s more, now is not the time to slow-roll a solution, or partner with a vendor that has no real track record in loss mitigation. Over the past several months, we’ve seen how quickly our industry can turn on a dime. Servicers that move too slowly or partner with unproven providers will end up buried under the weight of rising delinquencies, rapidly changing regulatory requirements and default relief guidance, and economic volatility. It can seriously impair existing operational processes, as well.
Q: What is your outlook for mortgage servicing for the rest of the year and into 2021? How much of an impact will the COVID-19 pandemic have on the housing market in general and what will a recovery look like?
Mason: Mortgage servicers are again venturing into new territory. With increasing instances of the virus, growing economic uncertainty and evolving changes to business and life in general, servicers are facing unrelenting transformation that will continue deep into next year. In order to survive the sheer volume of delinquency, relief needs, options, and urgency, many servicers will need to change their approach now.
As far as the rest of the housing market, COVID-19 will have a significant impact on housing across the board. Past restorations from the last financial crisis and natural disasters have taught us that recovery comes slowly, and I expect the same with this crisis.
However, the magnitude of the pandemic’s impact has already invoked radical changes in technology and even how we live. For example, we’re seeing an exodus from urban to suburban living as families seek more versatile living space in support of both virtual schooling and remote work practices.
In terms of technology, the pandemic has pushed virtual experiences and consumer self-serve experiences far in advance of where we stood at the beginning of the year.