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The Best Way For Servicers to Hedge Against Climate Change

A graph of how natural disasters are increasing over time.

What Keeps Mortgage Servicers Up at Night?

Many things weigh on a Servicer’s mind daily. Whether or not these things actually prevent them from getting a good night’s rest, they’re important all the same. Some trending concerns in no particular order are:

  • Remaining compliant with frequent regulatory changes and the costs to implement them
  • Being tech-forward and agile
  • Investor satisfaction
  • Consumer demand for a digital experience
  • An exponential increase in the frequency and severity of climate-related disasters

The last item on this list seems a little out of place, but it is indeed a growing area of concern for mortgage servicers. Whatever one’s personal feelings are about climate change, it’s hard to ignore the data. The above data shows that the climate is changing, and disasters related to it are increasing and happening more frequently.

While this has always been a concern of insurance companies, the adjacent mortgage servicing industry is beginning to pay attention, and if not, they should be.

Increasing temperatures cause unpredictable weather patterns and resulting disasters, even in historically unimpacted areas. In areas where things like fire and flooding happen, it’s now happening more frequently and redefining FEMA disaster maps. All of this results in insurance companies paying out record levels of claims, with total natural catastrophe claims over $92 billion in 2021. 

In the mortgage servicing realm, GSEs and private investors are having a heck of a time hedging assets in high-risk areas because climate change is literally changing the map constantly. Because of this, mortgage servicers have to put resources (which are already stretched thin) into recategorizing assets based on FEMA’s ever-changing fire and flood maps

Ultimately, those affected the most significantly by climate-related disasters are the homeowners. Aside from experiencing costly damages or outright losing their homes, they become displaced, lose their jobs, and (if they didn’t opt for the flood insurance) are still on the hook for paying down their home loan.

Proactive Disaster Relief 

While the weather is impossible to predict, there are proactive digital solutions that can help homeowners, Servicers, and investors when natural disaster strikes. Brace’s FEMA integration identifies if their property is in a disaster-impacted area and offers a quick link for hardship type. 

In just a few clicks, homeowners can see if they qualify and apply for assistance through the consumer-facing portion of Brace’s Default Management platform. On the Servicer side, no additional resources (human or financial) are required to provide a loss mitigation solution. By communicating digitally, Servicers and homeowners can work out a loan modification in literally hours, instead of the weeks/months it can take through the back-and-forth mailing of paper documents. Also, when you think about it, how will a homeowner in a distressed region receive mail if they don’t have a mailbox, let alone a home?

These quick digital resolutions provided by Servicers using the Brace platform translates to a much better Servicer/Investor relationship. Not only does it provide relief to homeowners, but it also keeps the assets within investors’ portfolios performing. With Brace, Servicers can provide Investors with portfolio transparency through weekly performance reports.  

Digitization is the Ultimate Sleep Aid

While it seems clear that climate-related disasters deserve a place in mortgage servicer’s top areas of concern, moving to a digital servicing platform can alleviate a lot of their pain points related to the issue.

Contact us to learn how to make the digital change your homeowners and organization have waited for.