Even as complications introduced by the pandemic persist, there are many strategies that can be adopted and adapted by servicers to weather the uncertainties of the market’s future. Most importantly, we learned from the COVID-19 pandemic that being proactive in preparation for worst-case scenarios is the best way to minimize disruption to borrower processes and services.
The housing market is different in 2022 than it was in the housing crisis nearly 15 years ago, which means the solutions and alternatives we turned to then may no longer be the best fit for our current reality. Servicers should be considering what additional options can be utilized that have not been thought of yet. They need to think beyond planning for today and solve for how borrowers can survive potential recession and emerge securely post-crisis.
One focus should be sustainable loss mitigation by creating affordability. The challenge of complexity should not be the problem of the customer in an already stressful time. Educating customers in advance can help avoid panic, which can lead to borrowers exhibiting less financially stable behavior than is typical of them in less turbulent times. Helping them understand the equity in their home and how to leverage it can offer a more informed foundation to get them through a temporary hardship.
The priority for mortgage servicers should be keeping their customers in their homes and, if that becomes impossible, finding ways for customers to exit gracefully and still have options to move forward. The mortgage industry should be looking at borrowers holistically and not accepting assumptions as the norm. For instance, they cannot automatically dismiss loans with high LTV as they might have before since some lenders have found them to be profitable. As another example, homes have become more essential to borrowers than cars, largely due to the rise of working from home. Rent increases may not have had as much of an impact on homeowner behavior before, but with workers depending more on stable housing than transportation, such rising costs make moving back into multi-family housing less viable as a backup should their mortgage become unmanageable.
Rejecting these default assumptions may feel counterintuitive, but lenders need to adjust their pre-pandemic mindset. The pandemic brought a lot of disruption but it also helped create simple, streamlined, self-service processes for customers. This trend needs to continue and go even further with more digitization for improved customer experiences. Bridging the gap between lending and servicing data for faster and more accurate analytics will also help push recent innovations a step beyond. Open-source datasets and API integrations are becoming more available, helping connect previously separate sources of information and functionality.
Technology can also be of assistance in predicting when crises will occur so servicers can be prepared to support homeowners in those areas. Models that can identify locations of common disasters allow lenders to use that data to prepare and educate the servicers there to better assess the financial impact on borrowers. However, these models should be run through multiple economic cycles in order to accurately make predictions that are not swayed by the abnormality of the past two years. Analyzing past disaster can help set expectations for timing and availability of support needed, even though they will not perfectly predict how future disasters will play out.
From a customer communication standpoint, proactive outreach before crisis hits is essential. Making clear, informative messaging available on websites and social channels is a first step in making the possibility and prevention of forbearance transparent. Loan servicers should conduct regular check-ins with borrowers to stay connected with them as their situation may change. This also presents an opportunity to share information with the customer on a regular basis so they have a clear understanding of what they can expect.
Keeping customers engaged well in advance will help smooth the experience when disaster does strike. Creating new products and tools to give them options that continue streamlining in other areas such as loss mitigation and loan modifications can be a viable place to start. Building out systems that allow for pre-population of data you already know is a small but powerful way to reassure the borrower that you are capable of setting them up for success in an already intimidating process. Educating borrowers upfront and helping them find the right solutions will keep them engaged and feeling supported, ultimately helping prevent foreclosure. Keep in mind, though, that such messaging needs to avoid overly technical industry jargon; sticking to simplified language in customer communications helps minimize confusion, frustration, and friction in guiding the borrower through complicated topics.
