The country’s mortgage services are gearing up for the biggest wave of NPLs since the subprime mortgage crisis, but this time they say they are.
The first wave of borrowers to join the government’s coronavirus mortgage rescue program is entering its last possible quarter for assistance, which means they will either have to start paying, sell their homes, or move on to foreclosures in September.
Mortgage rescue programs, both in the public and private sectors, were launched early COVID-19 pandemic… Initially, the government allowed borrowers to defer monthly payments for up to a year. Then the term was extended to 18 months. Borrowers must replenish their account every quarter.
Black Knight Financial Services estimates that about 7.25 million borrowers have participated in abstinence programs at one time or another throughout the pandemic, accounting for 14% of all homeowners with mortgages. Since then, about 72% of all participants have abandoned their plans, while 28%, or just over 2 million people, remain in a state of active abstinence.
A total of more than 350,000 borrowers will be considered for extension or withdrawal of deferred payments this week and next, Black Knight said. Of the 146,000 plans reviewed this week, 44,000 homeowners abandoned their patience and 102,000 plans were extended. Approximately two-thirds of borrowers remain patient, and Black Knight estimates that 575,000 plans will expire in September and early October, which means that mortgage companies will face the daunting task of handling about 15,000 problem loans a day.
“We all know what awaits us and we have invested too, and so I think that in terms of the industry we are, especially among the big service companies, I think we are definitely ready,” said Jay Bray, CEO of Mr … Cooper, the largest non-bank mortgage operator in the country.
At the start of the CARES bailout program, Bray described the mortgage program as “complete chaos,” but now admits, “I was wrong.”
Bray believes that the introduction of new technologies and simplified procedures ensured the success of this plan.
“It was simple, easy, the customer experience, I think, was as good as possible. And then you look at the tools that, as you know, when you give up patience, it’s easy too, ”he said.
But Bray also said his company is adding staff to prepare for the attack and is relocating staff from currently weakening locations of origin to mitigate losses.
“It will be a significant volume, but we are more than ready for it,” said Bray. “Working with all of these people and stakeholders, I think we have great solutions.”
Fannie Mae, Freddie Mac and FHA published new guidelines this week to help borrowers whose plans are about to expire. In part, this includes lowering interest rates more on loan modifications to help borrowers stay in their homes.
“Giving more families the right to lower interest rates will prevent unnecessary foreclosures, help strengthen business ledgers, and make sustainable home ownership a reality for more families currently living in a climate of uncertainty,” said FHFA Acting Director Sandra Thompson.
Mortgage companies in general want to keep as many borrowers as possible in their homes, as the foreclosure process is very expensive. They can make changes to the loan by lowering the interest rate and can also correct any missed payments until the end of the loan. Although there is a so-called waterfall of options, the last option is to sell a home, which in today’s very expensive housing market may even bring some borrowers a small profit.
The CFPB has also just changed its guidance on how service companies should treat borrowers after the expiration of the mortgage waiver program. In part, this improves service staff coverage, and also helps service staff handle loan changes rather than insisting on a foreclosure moratorium.
“We also see the change as an improvement, which allows service providers to approve a modification to the borrower even if they do not have all the information from the borrower,” wrote Jareth Seiberg, financial services and housing policy analyst at Cowen Washington Research Group. “This is the key to providing assistance quickly. As noted by the CFPB, up to 3% of mortgage borrowers are at least four months behind. This means they may face foreclosure. ”
While an improved economy should help more borrowers meet repayment requirements again, no one denies that there will be foreclosures in the fall and winter, as some troubled borrowers simply have no other choice. While it is difficult to predict how many homes, it will not be like a crisis a decade ago, when more than 11 million homes entered the foreclosure process.
“When you look at the tools we have today and how easy it is to get rid of tolerance plans, I think it’s much easier than what we’ve seen in the past,” Bray said.