“Responsible Servicers should be preparing now. There is no time to waste, and no excuse for inaction” – Dave Uejio, CFPB Acting Director
Mortgage servicers are under pressure to take action now to help homeowners avoid foreclosure. Many homeowners will be coming off of forbearances later this year and will need permanent solutions for their delinquent mortgages. Before we discuss this problem, and the two main paths ahead for servicers, let’s review how we got to the current situation.
For millions of Americans, the COVID-19 pandemic has had a devastating impact on their ability to make their mortgage payments. The federal government responded by passing the CARES Act, which helped keep people in their homes by allowing homeowners to get forbearances. As of March 28, 2021, 4.9% of all mortgages were still in forbearance (versus 0.25% as of March 2, 2020, before the pandemic). But forbearances are only a temporary fix. They simply delay payments until the borrower is eligible for a more permanent solution.
The Biden administration recently extended the forbearance enrollment window, provided up to six months of additional mortgage payment forbearance for certain homeowners, and extended the federal foreclosure moratorium. Many of these programs, however, will begin to expire in June for some homeowners.
On April 2, 2021, the CFPB published a bulletin warning mortgage servicers that they expect servicers to work with homeowers to prevent avoidable foreclosures. According to CFPB Acting Director Dave Uejio, “Responsible servicers should be preparing now. There is no time to waste, and no excuse for inaction.”
The CFPB proposed expanding the pre-foreclosure review process for COVID-impacted homeowers until December 31, 2021, unless the servicer has completed a loss mitigation review and the servicer has made efforts to contact the borrower and has received no response. Additionally, the CFPB is considering permitting servicers to offer modifications based on incomplete applications, provided certain conditions are met.
Mortgage servicers are acting now. How are they moving forward? There are currently two trends in the industry.
Path one is to substantially increase headcount. Servicers can try to scale their early contact collections teams either directly or indirectly through using Business Process Outsourcing “BPO” providers to start working with these homeowners, but the downside to this approach is that this can be slow and expensive. And when the crisis passes, servicers will likely be overstaffed and have to wind down these BPO arrangements or lay off many of these new hires.
Path two is a technology-driven approach that reduces call center volume by allowing a homeowner to fully self-serve and apply for forbearances and other streamlined options. Servicers can use this technology to automatically evaluate a borrower’s options using rules that have been configured for the specific investor and insurer requirements on that particular loan.
Brace processes thousands of loss mitigation requests per day and homeowners can complete full loss mitigation applications in as little as ten minutes. This is yielding a substantial reduction to call center volume and a simplified homeowner experience.
Whichever path servicers plan to adopt, what is clear is that the regulatory environment will continue changing for the foreseeable future.