Louis Zitting: Understanding What Today’s Borrowers are Thinking

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PERSON OF THE WEEK: With borrower protections set to end in the months ahead, mortgage servicers continue to brace for a potential wave of defaults stemming from the COVID-19 crisis.

The share of mortgages in COVID-19-related forbearance plans stood at 3.76% of all loans as of July 4, according to Mortgage Bankers Association’s Forbearance and Call Volume Survey.

Roughly 1.9 million homeowners are still in forbearance plans, the MBA’s data show.

Adding to the worry is that some of these borrowers are already “ghosting” their mortgage servicers. In a recent interview with MortgageOrb, Louis Zitting, founder & CEO of MonitorBase, offered some tips on how servicers can deal with this issue.

Q: Borrowers “ghosting” mortgage servicers during the pandemic has become a hot button issue. How big of a problem is this? Why do some borrowers decide to not contact their servicers when faced with financial distress? 

Zitting: It’s a pretty big problem. The first thing we need to understand is that this is the age of robo-callers and spam caller filtering. These days, it’s just difficult to get anyone on the phone who you haven’t already cultivated a personal relationship with. That’s on the financial service industry. 

A word to the wise: you can’t continue to spam someone’s phone or email too long before they start ignoring you. If you call and call, and your borrower doesn’t pick up the phone, your chances of being labeled as a “potential spam” caller by the borrower’s phone increase dramatically.  

Secondly, there are still many borrowers out there who simply do not understand their rights under the CARES Act. If they knew how easy it is to get relief, they would be answering the phone or reaching out to their servicer, right? As an industry, we need to do a better job educating borrowers that help is available.

Q: What have some servicers done to handle this problem of borrowers “disappearing?” 

Zitting: There’s a great deal a company can do to automate and coordinate borrower outreach between their servicing and origination channels. Unfortunately, however, these business operations are often very disjointed. At this stage of the game, most servicers are also overwhelmed with digesting the onboarding of billions in new originations and handling inbound phone calls. 

Servicers need to start getting creative about staying in touch with their customers. For example, there are predictive analytics available that can monitor borrower behaviors, such as whether a borrower has already applied for a loan elsewhere or has listed their home for sale. These tools can also automatically send out messages based on a borrower’s communication preferences, so servicers are able to stay on their customer’s radar.

Q: What impact will the ending of forbearance plans have on the market? Do you see large numbers of borrowers being unable to make their payments?

Zitting: It’s possible, but not likely. Look at today’s market data. Inventory is so tight that most borrowers can at least avoid default and foreclosure by selling. In 2007, homeowners who couldn’t pay their mortgage called their lender. Today, a homeowner who is having difficulty can call their Realtor. Most understand they can get out of their mortgage without too much collateral damage to their credit. The unfortunate part is that it’s going to be much harder for them to get back into the market. 

Q: What are some things that stand out to you about borrower behaviors today? Are there certain characteristics that could indicate when someone might be interested in buying a home or refinancing?

Zitting: Cash-out refinance transactions have become contagious, as the demand for these products has grown significantly over the past few months. Some of this was caused by the big banks suspending HELOC lending at the beginning of COVID. Currently, we’re almost back to pre-2007 mortgage crisis levels when borrowers were borrowing against their home equity for everything. Today, however, we’re seeing a lot of these funds going back into the borrower’s home. This can be an indicator of a future home listing, as well as a sign that your borrower will soon need another mortgage.

Q: What loan products seem to be the most popular among home buyers these days? Do you see certain products gaining momentum this year or in 2022, and why?  

Zitting: With interest rates still at relative historical lows, the lowest 30-year vanilla conforming loan with a fixed rate seems to be the winner. However, “popular” is not the word I would use to describe any loan in the current market. It’s more of an issue of what’s available. 

With rising home values, many folks are being priced out of the maximum loan amounts for government financing. For this reason, many lenders are sharpening up their value proposition on jumbo financing. However, there seems to be a growing gap between the haves and the have-nots in terms of coming up with a down payment and qualifying for these larger loans. You may get prequalified with a 640-credit score and 3% down, but we’re seeing fewer and fewer of these homebuyers get to the finish line. They simply can’t compete with folks who have excellent credit and are able to make cash offers. Somehow, we must resolve this issue. 

I think that’s a big distinction between this housing market and 2006. The markets are liquid, and financing is available, but you can’t buy a home these days without good credit. There are no freaky option-ARM products that are going to explode on consumers. The difference in loan quality is night and day.

Q: With the housing market heating up, what can lenders do to set themselves apart from their competitors? 

Zitting: We’re still in the midst of a historic refi boom, and lenders are interested in keeping the party going. The party doesn’t seem to be winding down yet, but I think a lot of lenders are thinking about the “afterparty,” so to speak. What happens when you have a third less volume and shrinking margins—and what do you do with all those underwriters you hired? If you hope to out-compete other lenders, you’re going to have to do things differently than you did before. 

I think that’s why we’re starting to see a lot of investment into marketing automation and streamlining the point of sale. With today’s technology, lenders are able to analyze hundreds of data points to see which clients or prospects are showing signs of what we call “in the market” behavior. For example, it’s pretty easy to find out who is getting ready to get a mortgage or sell their home. As the market heats up, I believe these tools will become more standard—at least among the lenders that come out on top.

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