The country’s mortgage service providers are preparing for the biggest wave of delinquent loans since the subprime mortgage crisis, but this time around they say they are ready.
The first wave of borrowers participating in the government’s coronavirus mortgage bailout is entering their final possible quarter for relief, which means they’ll either have to start paying, sell their homes or go through foreclosure from September.
Government and private sector mortgage rescue programs launched at the beginning of the Covid pandemic. Originally, the government allowed borrowers to postpone their monthly payments for up to a year. This was then extended to 18 months. Borrowers have to move up every quarter.
An estimated 7.25 million borrowers have participated in forbearance programs at some point during the pandemic, representing 14% of all homeowners with mortgages, according to Black Knight. Approximately 72% of all participants have since abandoned their plans, while 28% or just over 2 million remain in Active Forbearance.
This week and next, Black Knight says a total of more than 350,000 borrowers will be screened for extension or lifting of the forbearance. Of the 146,000 plans reviewed this week, 44,000 homeowners left the indulgence while 102,000 plans were extended. With about two-thirds of borrowers remaining in indulgence, Black Knight estimates 575,000 plans will expire in September and early October, meaning mortgage servants are faced with the daunting task of handling about 15,000 troubled loans per day.
“We all know what’s to come and we’ve invested too, and I think we are definitely ready from an industry perspective, especially among the larger service providers,” said Jay Bray, CEO of Mr. Cooper, the largest non-bank mortgage company of the country.
At the start of the bailout package that is part of the CARES Act, Bray described the mortgage program as “a complete mess” but now admits, “I was wrong.”
Bray credits the rise of new technology and streamlined procedures for the plan’s success.
“It was easy, easy, the customer experience was as good as it gets in my opinion. And then you look at the tools that you know, if you give up on indulgence, they are easy too, ”he said.
However, Bray also said his company is adding staff to prepare for the onslaught and moving some staff from originations, who are currently flagging, to loss containment.
“It’s going to be a significant volume, but we’re more than ready for it,” said Bray. “By working with all of these people and stakeholders, I think we have come up with some great solutions.”
A protester at a rally to cancel rent and mortgage loans in Minneapolis on June 30th.
Brandon Bell | Getty Images
Fannie Mae, Freddie Mac, and the FHA released new guidelines this week to help borrowers whose plans run out. This also includes a bigger rate cut on loan modifications to keep borrowers in their homes.
“Having more families eligible for a rate cut will prevent unnecessary foreclosures, strengthen corporate books and make sustainable home ownership a reality for more families currently living with the uncertainty of forbearance,” said FHFA director Sandra Thompson.
Mortgage servants in general want to keep as many borrowers in their homes as possible because foreclosures are very expensive. You can make loan modifications, lower the interest rate and also make up for any defaulted payments by the end of the loan. While there is what is called a waterfall of options, the last one is the sale of the home which in today’s very expensive real estate market could even make some borrowers a small profit.
The CFPB has also just changed its guidelines on how servicers should deal with borrowers when mortgage forbearance programs expire. Part of this is improving servicer reach and helping servicers process loan changes rather than pushing for a moratorium on foreclosure.
“We also see a change as improved that allows service providers to approve a borrower for a change even if they don’t have all of the information back from the borrower,” wrote Jaret Seiberg, financial services and housing policy analyst at Cowen Washington Research Group . “This is the key to getting things done quickly. As the CFPB notes, up to 3% of mortgage borrowers are at least four months in arrears. That means they face foreclosure.”
While an improving economy should help more borrowers get their payments back up to speed, no one denies that foreclosures will happen in the fall and winter when some troubled borrowers simply have no other option. While it’s hard to predict how many, it won’t be like the crisis a decade ago when more than 11 million homes entered the foreclosure process.
“When you look at the tools we have today and the ease with which you can get rid of forbearance plans, I think that’s a lot easier than what we’ve seen in the past,” said Bray.