Digital Transformation


5 mins

The Forbearance Crisis

Banks, lenders, and mortgage servicers are seeing a flood of requests for mortgage payment relief. Average hold times for some of the largest mortgage companies are between three and four hours, according to estimates by Digital Risk as reported by the WSJ. For those customers in dire need of having their payments paused, help cannot come soon enough.

When assistance finally comes, the confusion starts. Banks’ and servicers’ homeowner-facing communications are full of legalese and industry terminology, and many of them do not take the time to explain the short-term and long-term options for a homeowner in an understandable manner. What is a forbearance, anyway? Companies are throwing this word around like everyone knows what it means. In essence, payments are paused for a period of time, including principal, interest, taxes, and insurance. There are no penalties tacked on for having these payments paused and there is no negative impact to your credit report, as you will not be marked as late on your mortgage. These are the positive short-term results for homeowners.

However, there are longer-term implications that need to be made very clear. The biggest misunderstanding is that paused payments are not forgiven and do need to be paid back. At the end of the forbearance period, the homeowner is reviewed for a permanent loss mitigation solution which may be a lump sum payment. With this inevitable reality, homeowner frustration is hitting the airwaves throughout social platforms. A key concern is described in the following homeowner comment: “If I’m not working now because of a mandatory shutdown and cannot afford to pay $2,000 a month now, how will I be able to come up with $12,000 in 6 months to just pay back all at once?” There are many similar reactions online to this one, with homeowners feeling angry and deflated. Servicers have their own issues, too, as they need to manage each investor’s forbearance program and the terms of these forbearance programs may vary across their portfolio.

As many as 30% of Americans with home loans — about 15 million households — could stop paying their mortgage due to the COVID-19 crisis, according to an estimate by Mark Zandi, chief economist for Moody’s Analytics. Regulatory and investor guidance is changing rapidly right now, but there are actions servicers, banks, and lenders can take to alleviate homeowner frustration during an extremely stressful time.

The technology and processes that servicers put in place today are imperative to handle the onslaught of forbearances that will likely turn into other loss mitigation outcomes.

Servicers must enhance their digital presence and invest in a loss mitigation workflow platform to support the increased volume. For those who do not have a way for a homeowner to digitally request assistance, put this process in place immediately. Inform homeowners of short-term and long-term implications and options in clear, easy-to-understand language. And, prepare for future loss mitigation claims by having a portal where homeowners can easily apply for help once their forbearance period is coming to an end. This does not mean having a basic document portal or a simple link to a form to fill out offline. Go beyond a PDF document on a website and deploy a full digital homeowner solicitation packet that allows servicers to automate the information and document gathering based on intelligent workflow. And finally, empower your employees to do their best work by streamlining their workflow and ensuring that borrowers receive underwriting decisions as quickly as possible.

The time to manage the fallout from these forbearances will be here before you know it, and being prepared will aid in alleviating customer complaints, costly operational expenses, and compliance issues.