Among the telltale impacts of the COVID-19 on the global economy, the mortgage industry is among the severely impacted sectors. According to a press release published by the Mortgage Bankers Association
1, the mortgage delinquency rate took a huge leap to about 4 percentage points reaching an alarming 8.22% within the second quarter of 2020.
The findings of the National Delinquency Survey state that the inability of first-time homebuyers to make the down payments for FHA loans skyrocketed to a rate of 15.6%. This is considered as one of the primary factors that drove the alarming mortgage delinquency rate in this year. Co-author of the Milliman’s Mortgage Default Index (MMDI), Jonathan Glowacki opined that2 while the sharp increase in mortgage delinquency rates and defaulters, which refer to borrowers who lost their homes, can be related to the skyrocketing number of unemployment claims, its effect is likely to be less severe than what was witnessed during theglobal financial crisis. According to Jonathan Glowacki, this can be attributed to the huge stimulus in home price growth that was observed in the past few years.
The question which arises is why such an alarmingly high rate of delinquency rate despite governments’ economic stimulus packages which allows a relief of up to 360 days forbearance on many mortgages. The answer lies in the fact that nearly 30% of mortgages are provided by lenders that do not fall within the scopes of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Secondly, the lack of knowledge of lenders on the forbearance feature of the CARES Act. A majority of mortgage lenders are aloof of the fact that the act makes relief options available for people who are afflicted with financial hardships owing to the ravages of the pandemic.
As much as a difficult situation it is for the consumers, the pandemic situation has landed lenders in a sticky spot who are struggling to figure out a mortgage default process that is line with the current pandemic situation. Lenders face an obligation from government to adopt empathetic measures as parts of their mortgage default servicing process which includes relaxing payment due dates to accommodate deferred payments, waive delayed payment fees, among others.
While large mortgage players have enough capital to undertake these measures to establish their empathy for customers, but a majority of medium and small-sized mortgage lenders are getting severely impacted.
There is no doubting the fact that the pandemic outbreak has sounded the urgency to look at default mortgage servicing from a different perspective. The COVID 19 pandemic has heralded a sea of changes in the way mortgage lenders would do business and determine risk.
Borrower request for payment deferral can come in different forms. Read this blog to know how lenders address such tricky situations in the face of the COVID 19 pandemic.
Embrace Auto-payment
With testing times ahead, encouraging auto payment of loans has become an integral part of a lender’s default management services. Making an automatic payment involves setting a date and an amount which will be automatically transferred to pay the loan. An automatic payment can be done either by means of a checking account or a credit card and can also be directly done from the payee’s bank. Apart from reducing the chances of a late fee for the payee, it minimizes chances of default or delay of payments.
Customer Segmentation Remodeling
The prevalent scorecard-based models that were used to classify high-risk customers have lost its integrity in the face of the COVID 19 pandemic. The dated models did not factor in the impact of the sector or the geography on an individual’s income source. As a matter of fact, this factor has assumed immense relevance at the pandemic times. According to Mortgage Bankers Association’s findings3, the rate of mortgage delinquency can be equated to the availability of jobs across the states in the US. New York, Florida, Nevada, New Jersey, and Hawaii are the five US states that accounted for a significant increase in mortgage delinquency rates as the prevalent hospitality and leisure employment prospects in these states were severely flattened due to the COVID-19 pandemic. As an intrinsic part of default servicing in mortgage, customer segmentation should be based on the ongoing crisis scenario for a better risk optimization. It is advised that lenders leverage advanced analytic modelling and look beyond the conventional analytics techniques which are logistic regressions and decision trees. It is critical to take into account all the possible segmentations to be considered for customer segmentation which can also offer feedback to suggest the best policy for a customer.
Reshuffling the Front-end Operations
The pandemic-induced global economic crisis has invariably disrupted the regularity in paying loans at due dates. This resulted in an influx of customer calls which created a pressing need for a properly streamlined customer communication center. As a measure to prevent the contagion, a major chunk of employees works remotely which resulted in capacity constraint in the contact centers of lenders. Executives are advised to invest in resources and tools to facilitate real-time communication for customers which will be vital at this economically critical stage. Allowing remotely working employees an access to customer data will peak the chances of data breach and fan other sorts of cyberthefts. To mitigate such risks, lenders are advised to fortify their monitoring activities without encroaching into an employee’s private space. As a matter of fact, allowing employees to work from a remote workstation can help saving infrastructure costs which will not only minimize turnover rate at this stage. Such an arrangement will facilitate a flawless, streamlined, and secured source of communication with customers which is a critical part of a lender’s mortgage default process.
Investing in Digital Technologies
The ongoing COVID 19 pandemic resulted in job losses and pay-cuts which is evident in an onslaught of payment delays from various sectors of the customer base. Lenders are advised to invest in digital channels such automated calls, messaging apps, emails, pop-ups, among others to keep their communication channel with their customers active. This facilitates a regular and proactive communication with customers which helps the lender to presume any instances of payment delays. Essentially, these digital channels serve to remind customers as their payment date approaches. These channels can be programmed to redirect customers to visit touchpoints where they can let their lender know about their current condition and the feasibility of them in paying off the loan. This allows lenders to make necessary adjustments in the payment schedules on a proactive basis. Lenders must devise a holistic multichannel strategy to make the most of these digital channels that can facilitate a robust customer experience.
Taking Prudent Decisions on Debt Relaxing
Short and medium-term debt relief measures will be a critical part of a lender’s mortgage default servicing process considering the severity of the COVID 19 pandemic impact on the global economy. Even though a major section of a lender’s customer base is willing to pay off the deb but are unable because of the sheer lack of fund. This is an opportunity for lenders to carefully design and incorporate debt relaxing measures in their mortgage default process which will have a win-win impact for both the customer and the lender. Let’s look at the factors that will help lenders to devise mutually beneficial debt relief measures:
Retain loan affordability– Much in line with the philosophy of devising a mutually beneficial debt relief measure, a lender is advised to waive off the fees and interest associated with a customer’s due payment. This will effectively reduce the size of the payment for the customer and save the lender from another delinquent account.
Careful selection of customers eligible for credit– Lenders must seek specialized services from underwriters to determine eligibility of customers of getting a line of credit. This eligibility will be based on their income projections and ability to pay off debt in the future.
Loan structure redesigned with collaterals– For customers, who are classified as high-risk prospects, it is crucial that lenders redesign the loan package with more guarantees and collaterals. This effectively promotes the customer’s accountability and obligation to pay off debt on time, thereby providing lenders more security.
Initiatives to encourage timely payment– At this time of a severe capital crunch, lenders should encourage customers to pay on time even if it is a part of the actual amount. Lenders should invest on digital channels in the form of push notifications and emails to keep their communication channel with their customers active. These channels play a major role in lenders’ default servicing in mortgage that can keep the customers engaged on a regular basis by reminding then to make payments or advise alternate ways upon detecting a customer’s inability of paying off a loan at a certain date.
Inform customers on financial aids– Customers will have debts of different kinds such as mortgages, home loans, automobile loans, credit cards and the priority to pay each of them is subject to change. It is the responsibility of lenders to inform their customers about financial aids provided by government bodies that are aimed to help customers to pay off their debts.
The main drift of these points is the importance of lenders to be flexible enough to bend solutions based on a customer’s financial viability while keeping in mind the operational changes that this flexibility will entail.
We hear Marina Walsh, MBA’s Vice President of Industry Analysis, say, “Fortunately, there are several mitigating factors that make this current spike in mortgage delinquencies different from the Great Recession. These factors include home-price gains, several years of home equity accumulation, and the loan deferral and modification options that present alternatives to foreclosure for distressed homeowners.”
How does Outsourcing the Mortgage Default Servicing Process to Expert Mortgage Assistance help you?
Expert Mortgage Assistance consists of a team that is made up of highly skilled mortgage experts with a wide range of experience in default management services. The team renders services that are an amalgamation of the newest technologies and the industry best practices to help lenders do a better risk management in the mortgage process. Expert Mortgage Assistance takes an end-to-end responsibility of document management and report preparation without compromising on quality. The team leverages the new-age CRM systems to maintain records of histories of customer payment, information of their properties, and other supporting documents in an accurate way.
Here are the benefits lenders expect by outsourcing mortgage default servicing process:
- A team comprising over 1000 mortgage professionals who have proven expertise in default management
- Cutting-edge and proactive back-end support provided for all mortgage loan types such as USDA, VA, FHA, among others.
- Loss analysis reports without any error and due diligence in the process of loss recovery
- Substantial and detailed documentation to help store complete default records
- Multi-tier document review process aimed at maintaining accuracy
- Better quality in operational and productivity reporting
- Minimization of operational costs for lenders up to 40%
- Minimization of TAT up to 30%
- Lenders have the flexibility to utilize a certain amount of resources based on their requirements
Who We Are and Why We Are an Industry Authority?
This article is penned by Expert Mortgage Assistance, a mortgage loan servicing solutions provider who have over 10 years of extensive experience in the mortgage market. We have made our mark in the commercial and residential mortgage markets in the US and boast of acquiring deep-dive industry insights which we leverage in current mode of operation in the changing times. Our enriching experience in the industry allowed us ample knowledge of mortgage default management services. This knowledge allows us an upper-hand over our competitors in ensuring strict regulatory compliance and uncompromised quality standards during the post-closing process so that make these mortgages ready to be sold to the secondary mortgage market.
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