For a mortgage service provider, having a mountain of current accounts with zero delinquency is nothing less than Utopia. However, if there ever was a way to achieve it, the road to this ideal state, has now been blocked by the pandemic.
“Delinquencies on U.S. home loans surged by 1.6 million in April, the biggest one-month gain ever,” says Bloomberg. It further goes on to report that the number of 30 days arrears have almost doubled to 6.45%. Moreover, borrowers are heavily inclined to deferring, governments are offering moratorium, and compliance laws are being updated every day.
Then how do you tackle mortgage delinquency in such a situation?
You adopt an impeccable Assets Management and Default Servicing Strategy. And this is possible only when you strengthen six key pillars in your Mortgage Business.
Ensure your borrowers understand the process and if they are choosing the right mortgage plan. For that, you must help them assess their financial situation and evaluate options for paying the mortgage loan. This will assist you in minimizing losses and delinquency very effectively, even during foreclosure agreements. Moreover, it will also help in your collection efforts.
This area is one of the most complex areas in the mortgage business. It decides whether or not you can avoid that costly, plus lengthy foreclosure process. Keep in mind to liaison properly with the servicer, investor, insurer, and customer. Also, ensure investor insured guidelines are always followed to determine the best course of action.
You can use these common loss mitigation options to ensure optimum results:
- Interest Rate Reduction
- Loan Modification
- Short Sale
- Deed in Lieu of Foreclosure
- Bankruptcy Handling
In the case where a person or business is unable to repay their outstanding debt, it is extremely important to preserve and protect the company’s creditor and collateral positions. Arrange for provisions where, if the borrower fails to perform under the terms of the plan and the loan has defaulted, the case is referred to outside counsel instantly. There should also be arrangements for filing required proof of claim with the bankruptcy court.
Make sure you have arrangements to monitor the outside counsel’s performance and ensure timeliness; delays can mean additional costs for the company. It is also advisable for the counsel to attempt to obtain relief from stay from the bankruptcy court. This allows normal collection or foreclosure proceedings to be initiated.
If all efforts to cure the default have been exhausted, the foreclosure process begins. This happens when a property is legally taken from a borrower who is not complying with the terms of the note. To successfully tackle such foreclosures, set-up a system where an outside counsel or a foreclosure agent, such as a trustee is intimated timely.
Your organization must also be able to respond to all inquiries concerning reinstatement and protect the real-estate property during foreclosure.
In the case where a Real Estate Owned or REO property has no potential buyers during foreclosure and the property was acquired by the lenders itself, you must ensure the property is preserved and rehabilitated. This is to ensure the property is sold as quickly as possible at fair market value. Your team must be capable of disposing of the real estate directly or through outside service providers such as a real estate agency if required.
You must keep proper records of all the documents involved in the default cases. Setting up proper data segregation and segmentation processes are best. Remember, timeliness is the key metric in default reporting. Therefore, automating the collection and recording is extremely helpful. It will also ensure reporting timelines are strictly maintained to meet investor or insurer guidelines.
Remember, that your borrowers are also going through an unprecedented time. As of May 1, 2020, 3.8 million homeowners were under the forbearance umbrella. This represents 7.3% of all active mortgages; and these are just the recorded cases.
Therefore, staying empathetic in the entire process of mortgage collection and foreclosure is extremely important now. Ensure that you achieve the right balance while keeping both your borrowers and the organization’s interest in mind.
Looking for the most effective route to strengthening the six pillars mentioned above? Reach out to us.
Allsec delivers robust Default Servicing & Assets Management for businesses with dedicated teams and technology that uses the perfect blend of personalized human interaction and digital transformation.