Default Servicing Analysts Expect Uptick in Some Loan Types
Altisource Portfolio Solutions SA, Luxembourg, said its annual survey of default servicing professionals show a bit of nervousness in 2020 over certain loan types, including FHA and private lender loans.
The company’s annual State of the Default Servicing Industry highlights results from its fourth annual Default Servicing Survey, a poll of 200 mortgage default servicing professionals conducted in 2019.
The survey notes the overall U.S. delinquency rate is at a record-low 3.6 percent. However, despite these historically low delinquency rates, servicing professionals expect the rates for certain loan types to grow—specifically, FHA and private lender loans. Ninety percent of respondents (up from 87 percent in 2018) said their organization currently services FHA loans; 80 percent (up from 72 percent in 2018) expect their FHA loan portfolio to increase over the next 12 to 24 months and 85 percent (up from 77 percent in 2018) expect the increase to be more than 25 percent.
“With historically low delinquency rates, we may see a higher rate of FHA defaults in markets experiencing economic turmoil with little housing liquidity, such as rural areas,” said Patrick G. McClain, Altisource Vice President of Enterprise Sales. “In addition, servicers are using a single-vendor approach to manage multiple pieces of the default lifecycle to help mitigate losses and streamline efforts.”
The survey also noted performance is becoming increasingly challenging as portfolios shift to rural areas and vendor pools for distressed loans and properties continue to diminish during this strong economic environment. Nearly one-quarter (22 percent) of servicing professionals surveyed said their biggest challenge when managing vendors is vendor performance; 17 percent cited costs and another 17 percent cited strategic alignment.
When evaluating a vendor to manage their default portfolio, a significant majority of servicing professionals surveyed (96 percent) said property preservation and inspection is a leading consideration; 95 percent pointed to end-to-end default disposition capabilities and 94 percent cited a strong marketing platform/marketing scale.
The report said because of increasingly complex requirements around vendor management and vendor oversight, servicers are looking to vendors that can manage multiple pieces of the default lifecycle (i.e., REO asset management, property inspection and auction services) and that can seamlessly integrate with their current technology platforms. An overwhelming majority of servicing professionals surveyed (94 percent) said their organization is likely to select a single-vendor approach to managing the default lifecycle.
Eighty-nine percent of respondents said they are currently using online auctions (up from 76 percent in 2018) as part of their long-term strategy for asset disposition and 72 percent would like to do more online auctions (up from 50 percent in 2018).