Looking Ahead to 2021: The Looming Risk of a Meltdown (And How to Mitigate It)

October 28, 2020





Interest rates are low now, and the market is strong for REO, but things will change in 2021.

In 2021, the state of the real estate industry, and particularly housing and REO, will be determined by the economic impact of the COVID-19 pandemic on American borrowers in 2020.

With millions reaching the end of their forbearance plans, a significant shift in the housing market and REO asset management is likely to occur in 2021, which could lead to a widespread industry meltdown and cause ripple effects on the financial industry. 

A real estate catastrophe of that magnitude could tempt borrowers to “throw in the towel,” according to Allan Weiss, founder of Case-Shiller Weiss and Weiss Analytics, in a webinar hosted by RealtyBid and parent company Covius titled “A 2021 Housing and REO Outlook: What to Expect and How to Prepare.”

Weiss added that the potential threat of homeowners throwing in the towel due to a liquidity crisis in bulk could mean a $450 billion loss

The likelihood of such has only increased due in no small part to the implementation of the FHFA’s recent “adverse market refinance fee” of .5% increase on all refinances, effective September 1, 2020. The fee is sure to lead to heightened financial hardship on borrowers, says the Mortgage Bankers Association (MBA) President & CEO, Bob Broeksmit.

The good news is that there are still ways to mitigate the looming risk of a potential meltdown in the industry. 

Here are some of the top recommendations from fellow industry experts.


#1 – Evaluate Properties


For starters, on the operations side, servicers, sub servicers, and investors can evaluate properties for depreciating and appreciating indicators, according to Weiss. By examining these underlying indicators, stakeholders can take a proactive approach to assess potential loss with a property.


#2 – Leverage Technology


It’s also critical for servicers and sub servicers to manage the risk now of a looming “price-reducing meltdown”

 by leveraging technology to address these market segments, offered Joe Chappell, EVP at Covius. 

Chappell also urged relying on leading borrower indicators, external data from sources like MBA data, in addition to internal data, to “design processes and modeling capacity to assist borrowers exiting forbearance.


#3 – Prepare Teams, Tactics & Strategies


According to Pete Pannes, Chief Business Officer of Covius, “now is the time to test the readiness of teams, tactics, and strategies.” By evaluating the preparedness of your business to withstand the financial impact of an industry meltdown in 2021 in advance, you can take the necessary measures to ensure minimal impact to your clients as well as your business. 

Servicers and sub servicers can accomplish this by offering additional training and development to your team members, revisit current protocols, and adjust existing business strategies to ensure that they can weather the storm. Use case studies and client feedback as a benchmark to measure the business response, making adjustments as needed.


#4 – Build & Foster Relationships


Now is also the time for servicers and sub servicers to maximize any opportunities to build and foster relationships as they brace for the impact of a looming meltdown in the real estate industry.

During the Five Star FORCE Summit in September 2020, John Dunnery, VP of Government Loan Servicing at Bayview Loan Servicing, LLC, advised taking advantage of this time and the improved communication efficiency with government partners (such as GSEs) by reaching out to contacts and establishing new ones — if they can’t help you, they may know someone who can.

Bear in mind that relationship building also applies to the clients. Servicers and sub servicers could use this time to reach out to borrowers as well to learn of their impacts and how best to serve them during this time of uncertainty. Increased customer service and virtual assistance can go a long way in this regard when utilized effectively.

Although 2021 will present some significant challenges to the real estate industry regarding housing and REO, servicers and sub servicers armed with the requisite tools and preparation can effectively navigate the mitigation of risk, paving the way for greater efficiency and sustainability.

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