Paul Fischer of Paradatec on What Mortgage Servicers Can Expect in Months Ahead
Paul Fischer is Director of Professional Services with Paradatec, Cincinnati. The company’s website is https://www.paradatec.com/.
MBA NEWSLINK: The mortgage servicing landscape has changed practically overnight. Did anyone see this coming?
PAUL FISCHER: I think that answer varies from one servicer to the next, but in general, I don’t know that anyone saw COVID-19 taking on the level of enormity that it has nationwide in such a short time frame. The U.S. economy has been on a good run over the last few years, which likely lulled many folks into thinking that this pace would continue for the foreseeable future. Our government remembers the challenges with the liquidity delays in 2007-2008, and acted much faster this time around. Based on the Fed’s immediate move to flood the market with liquidity, we’re optimistic that these backstop efforts will limit the magnitude and duration of this downturn.
NEWSLINK: How is this environment different from what servicers faced during the Great Recession?
FISCHER: I think the mindset continues to shift as the pandemic drags on, but for me personally, I initially felt that this would be more of a dip in the road and that we’d get back to a normal routine fairly quickly. Again, the markets had been performing so well over the last few years and the fundamentals were there. Now I recognize there may be longer term implications, but the immediate move by the Fed is a huge advantage over what we all remember from the Great Recession.
Another major difference this time around is the truly global impact COVID-19 has had in terms of multiple countries’ stay-at-home orders. This impacted many BPOs’ ability to continue to provide their offshore labor services, which then introduced serious constraints on their U.S. clients’ operations. This domino effect didn’t exist at this magnitude in the Great Recession, and speaks to the value of using technology to automate otherwise manual tasks.
NEWSLINK: Individual lender data about 30-day delinquencies aren’t going to be available until later this month (May). What are some steps lenders can take now to get ahead of that curve?
FISCHER: Knowing the unfortunate wave that is building, servicers should be evaluating the efficiency of their systems and processes associated with forbearance, loan modification and default production. How quickly can the needed data be retrieved? Is that data known to be accurate, or must it be manually verified against the documents of record before real processing begins? Can data from borrower-provided documents be processed automatically, or is the process still limited by manual data entry and review activities?
During this calm before the storm, organizations would be wise to comb through their servicing portfolios to ensure the servicing systems’ data elements pertinent to the forbearance and loan modification functions are correct relative to the documents of record. As an example, a number of our clients have used our solution to extract the late fee elements of amount, grace days and scope from the documents of record for comparison to the servicing system, to then update the servicing system where necessary.
The window to source alternate technologies is closing fast, but technology does exist to perform such efforts with limited, or in some cases no, manual intervention.
NEWSLINK: A lot of loans are in trouble. “Ability to repay” is generally based on steady employment. With so many Americans currently out of work – even temporarily – do lenders and servicers need to rethink “ability to repay?”
FISCHER: This is a great point. While an applicant’s monthly income may be sufficient to cover the mortgage payment, it’s still a hand-to-mouth lifestyle that is impacted by every little blip in their monthly budget. Going forward, perhaps the ATR analysis will put greater value on an applicant’s balance sheet to help carry them through economic challenges such as this.
NEWSLINK: Once the worst is over, how do you think the mortgage landscape will change? What will be different?
FISCHER: As you mentioned earlier, perhaps the ability to repay models will be tweaked to better assess one’s ability to bridge a three- to six-month financial downturn. But ultimately, organizations that don’t have ready access to purified data in their systems need to be looking at the necessary changes in both technology and process that will provide such access. Data analytics and forecasting are based on historical content, but if that content is locked in systems, or worse, in documents, and only brought to life with manual reading and data entry, those organizations will be slow in reacting to general market conditions and their individual customers. Data is the lifeblood of any organization, and those who make the best use of that data will be the industry leaders.
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