Will Mortgage Servicing Normalize this Summer?
Jul 20, 2023, 19:09 ET
Author: Matthew Preuss
The word “normal” has earned itself a bit of a bad reputation in the mortgage industry. Experts have been calling for a normalization of the mortgage business pretty much every month for the past few years. It hasn’t happened yet.
But that may be changing, at least for the mortgage servicing industry.
The pandemic upended the servicing industry as the federal government took steps to avoid a crisis when workers were sent home for their own safety. When it became clear that many homeowners could be at high risk of default during COVID, moratoria locked down virtually everywhere.
Without the ability to perform default servicing, servicers were caught in limbo without the ability to help their borrowers, except for locking them up in forbearance.
But all that may be ending now.
A return to normal as the government steps back
Now that the health crisis is getting smaller in the rear-view mirror, the government is starting to step back and let the industry get back to work. This will allow the servicing business to normalize. But that’s not a bad thing.
By now, it’s now clear to just about everyone that homeowners have accumulated enough equity in their homes to work their way out of any serious problems. A repeat of the foreclosure crisis is not likely.
But we are very likely to see mortgage servicers with the need to once again begin normal default servicing again to help those borrowers who fall behind catch back up.
For some servicers, this might be a difficult transition. The new staff has never done this kind of work before, and more experienced staff hasn’t engaged in serious borrower outreach in years.
Without a forbearance option on the table, the chances of borrowers reaching out to their servicer at the first sign of trouble is very low. If servicers want to help their borrowers, they’re going to have to find a way to stay in touch.
Borrower outreach in a post-COVID mortgage servicing world
Many servicers are likely to find that the various moratoria created huge log jams of borrowers who have been living on the edge of trouble for years. Without the government’s forbearance program to fall back on, they’re going to have to find another way to deal with this problem.
No one wants to see these borrowers lose their homes, least of all the government regulators. But if the servicer can’t get in touch with their borrower, they can’t help them.
Our own research shows that the first thing most borrowers will do when they fall behind on their loan is stop communicating with their loan servicer. It’s just human nature to try to solve the problem without involving an outside party.
But homeowners aren’t in the business of solving default; they don’t know what options they have nor how to move forward on a plan to become current. So, they go dark.
We know this is going to happen a lot more often in the months ahead. Whether the country goes into recession or not, there is a logjam of borrowers who are going to have trouble.
The solution is for servicers to be proactive. Realize that 30% or more of your borrowers will ignore your traditional communication methods when they get into trouble.
You may have to pay them a visit. Door-knocking services like that offered by NCCI have been extremely effective at getting borrowers back in touch with their servicer so they can begin working through their problems so they can get back on track.
Find out more about how this can work for you by reaching out to us today.