Servicing COVID-19-Related Forbearances to Avoid Foreclosure
The COVID-19 pandemic has left millions of American borrowers with unprecedented job loss and financial uncertainty.
In response, the real estate industry, prompted in part by the CARES Act and guidance from the FHFA, Fannie Mae, and Freddie Mac, issued widespread forbearances to ensure homeowners and renters maintained housing throughout the pandemic.
However prudent the CARES Act proved at the beginning of the pandemic, no one could anticipate with a degree of certainty the full magnitude of COVID-19 — with no sign of things returning to pre-pandemic normalcy any time soon with the looming risk of meltdown.
The results of which can significantly impact the mortgage industry without the aid of source funding from a liquidity facility to address COVID-19 forbearance requests for single-family and multi-family servicers, says Bob Broeksmit, President & CEO of the Mortgage Bankers Association (MBA).
As 2021 nears and the unemployment rate still on the rise, albeit at a significantly reduced rate, the industry needs to brace for the reality that many borrowers may not be able to resume regular mortgage or rent payments when their forbearance plans end.
With that, the question that forward-thinking servicers and sub servicers bracing for the inevitable commencing of forbearance end dates now contend with is: “How do we help clients with COVID-19-related forbearances avoid foreclosure?”
Read on to learn about how servicers and sub servicers can mitigate the biggest challenges of COVID-19-related forbearances, primarily helping borrowers avoid foreclosure.
Facilitate Borrower Education
The first thing servicers and sub servicers should address is borrower education, according to Courtney Thompson, SVP of Default Mortgage at Flagstar Bank, in an interview with DSNews.com in September 2020. Clients must be aware of the many COVID-19-related solutions available to them to accomplish this.
By informing borrowers of their options at the onset, it affords the servicers and sub servicers the opportunity to create customized solutions that help the customer down the line, i.e., when the forbearance expires.
Even further, Broeksmit urges that addressing fallacies such as the “misperception that a borrower must repay the deferred payments in a lump sum at the end of the forbearance period” is crucial to borrower education, which begins when setting up the initial forbearance strategy.
When facilitated effectively, the borrower protection implemented relieves the pressure of their financial hardship in the short-term while necessary. It also has credible exit options built-in and does not preclude them from the eventuality of resuming payments, maintaining their accountability and responsibility for contractual obligations.
Maximize Relief Under the Law
Thompson also recommended servicers and sub servicers working to ensure borrowers know and take advantage of “total relief under the law,” which will involve an increased level of customer service via company sites, the phone, social media, etc. to disseminate the necessary information.
Another key aspect here is that timing is also everything. Depending on the borrower’s unique financial circumstances and allowing for a certain degree of variability, accessing COVID-19 protection too soon could trigger what Thompson calls “a longer-form loss mitigation process” later on.
Thompson is, of course, referring to the 90-day versus 180-day forbearance options many borrowers have already considered, when, in fact, CARES provided up to 12 months of forbearance for those who needed it — “needed” being the operative word.
Directing borrowers to maximize much-needed relief through legislation, such as CARES, temporarily lessens the financial burden of making mortgage payments, specifically, and when implemented correctly, creates an achievable goal of resuming monthly payments within a realistic timeframe to avoid foreclosure.
The unprecedented influx of COVID-19-related forbearances will be a significant challenge for servicers and sub servicers going into 2021. Through the facilitation of borrower education and aiding borrowers in maximizing relief under the law, however, the industry can proactively safeguard borrowers from potential foreclosure and subsequent loss mitigation.