At the 2023 MBA Servicing Solutions Conference & Expo, expectations for the housing market were markedly different than a year before. While not quite as dire as predicted even back in the fall, the MBA experts are still warning servicers that this year and even into 2024 will have unpredictable impacts on homeowners.
Market Outlook for 2023
A mild recession is expected based on factory inventory numbers worldwide, 5% unemployment rate, and decade-high interest rate volatility. Inflation and long-term rates are slowing down, although they are not expected to come back to desired rates anytime soon. What this means for servicers—and originators, too—is that preparations should already be underway for how to provide existing homeowners with needed support to stay in their homes and guide first-time homebuyers through available assistance programs they may soon need.
Currently, the over 50 million 28–38-year-olds in the United States show the lowest rate of homeownership of any other adult demographic. Market experts predict that this group of potential buyers will show the greatest leap in homeownership over the next several years. This younger demographic shows greater interest in self-service support options and digital engagement than any other before them, and servicers should take note and and develop new strategies to reach them with critical information that will help get them through any distress during this time.
Government Agency Support from the Pandemic into Recession
The FHA’s announcement that insurance premium requirements would be reduced by 30 basis points came after long deliberation for how to achieve a meaningful but prudent decrease that still helped push people on the bubble over that final barrier in deciding to purchase a home. This will have major impacts on those younger renters looking to buy their first home.
The other government agencies continue to develop new policy updates and assistance programs that can be vital tools for homeowners during the impending recession. Ginnie Mae will be building on the success the Pass-Through Assistance Program showed as a potential back-up plan for borrowers. The VA’s strategies during the pandemic resulted in only 2.5% of loans now in default, though they are developing new solutions that will be more sustainable in the long term.
Most of all, these agencies learned the importance of enabling digital solutions that could power scalability, such as Ginnie Mae’s digital collateral program which commingles paper and e-mortgages/e-notes, the new Mortgage Recovery Advance pilot from the USDA, and the API integration project being undertaken by the VA. Continuing the modernization process in these agencies as well as within servicing will open up more options to support homeowners in the coming years.
Servicer Strategies for Emergency Preparedness
Technology is not the only thing that needs to be in place before potential disaster. Servicers should be evaluating their own processes and staffing to ensure responses to emergencies can be executed with flexibility and nimbleness. Response plans for all imaginable scenarios need to be documented and staff trained in how to follow them so when the time comes to deploy a plan, servicers need only pull the right levers. Monitoring leading indicators across other industries and banking arms is a good strategy that will help servicers identify in which areas borrowers will need the most assistance. This will likely require collaboration with other servicers who can help keep the industry aligned with each other and offer consistency to homeowners in their responses.
One of the potential options on the horizon is the deferral payment plan from HUD. This would allow use of partial claims to cover a portion of payments for borrowers entering forbearance. Any solutions that end up in use, including this one, would need to be sustainable and able to operationalize. Borrowers need to be kept in the loop about what this means for their account statuses, which can be accomplished by including information and key updates about assistance programs on their billing statements and with real-time updates visible via their online portals.
The best thing servicers can do for their borrowers now is relieve some anxiety of the unknown by laying out clearly what to expect over the next five years. When borrowers know what options are available to them and how they can access them, they are less likely to panic and overwhelm their servicer with customer service calls.
Although it may seem obvious that preparation is the most important thing anyone can do before an expected disaster, there is no such thing as being too prepared for servicers in this case. Servicing teams should collaborate to form response plans that are actionable, scalable, and adaptable to different circumstances and make sure their staff are well-trained. Once those plans are in place, clear communication to borrowers will help lay the groundwork for their trust in your ability to assist them when they begin to struggle. With all contingencies planned for and borrowers kept informed, servicers will be well-equipped to help their customers stay in their homes and weather whatever market turmoil is ahead.
