Anita Bush: Effective Forbearance Management for Mortgage Loan Servicers
Anita Bush is vice president of Mortgage Servicer Product Development for FICS (Financial Industry Computer Systems Inc.), a mortgage software company specializing in flexible, cost-effective, in-house mortgage loan origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, housing agencies, banks and credit unions. FICS’ software platforms provide customers the flexibility to choose an in-house or cloud hosting solution. The company also provides innovative document management, API and web-based capabilities in its full suite of products. Visit www.fics.com for more information.
With 2.7 million loans now in forbearance and a new acting director at the nation’s most powerful mortgage regulator, servicers are working hard on their plans for easing borrowers out of forbearance and back on track when the COVID crisis ends.
At its peak in early June, 8.55% of servicers’ portfolios were in forbearance, which accounted for about $1 trillion in mortgage debt not receiving monthly payments. Today, it’s closer to 5.38%.
Still, servicers are seeing new requests for aid from borrowers, especially those with FHA or VA loans. FHA recently extended its deadline for initial forbearance requests through February 2021.
It’s not yet clear whether we are on track for another foreclosure crisis. Servicers are responsible under federal law to help borrowers get back on track, which will require them to establish effective post-forbearance plans and then utilize good mortgage servicing software to implement them.
In this article, we’ll address some of the servicer’s legal requirements and offer three keys to success intended to help servicers manage the post-forbearance process.
Servicers’ responsibilities under the law
Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), mortgage servicers must offer up to 12 months of forbearance, in up to 180-day increments, to COVID-19-affected homeowners who have federally-backed mortgage loans for one to four-unit family properties. The time periods differ slightly for multifamily mortgages, but owners of these properties also qualify for assistance under the Act.
During a period of forbearance, no fees, penalties, or interest shall accrue on the borrower’s account beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract. The covered period will end upon termination of the COVID-19 national emergency. No one knows when that will be.
Servicers must use guidelines provided by the applicable Government-Sponsored Enterprises (GSEs) or agencies to offer borrowers payment relief options, which can include reduced rate payments and delayed payments.
Servicers must contact borrowers 30 days before the end of the forbearance period to discuss repayment options and determine what plan best serves the borrower’s needs.
In addition, servicers must report forbearance accommodations to the credit reporting agencies. The Fair Credit Reporting Act was amended by the CARES Act by adding a subsection requiring servicers to report accounts that were current prior to forbearance as current during the forbearance period. For more information, see the CFPB Compliance Aid for CARES Act Credit Reporting.
When new Acting Director of the CFPB Dave Uejio was asked about his initial directives for the Bureau, he said, “One thing we can do immediately is focus our supervision and enforcement tools on overseeing the companies responsible for COVID relief.”
3 keys to effective forbearance management
Focus on good communication
Servicers must respond to borrower requests in a timely manner. Congress has a very good idea of what it considers an excessive wait time.
Effective call routing and electronic communication is built into many platforms and Fannie Mae and Freddie Mac have provided a handy guide in the form of the “COVID-19 Forbearance Script for Servicer Use with Homeowners.”
Servicers should deploy borrower-facing web applications to provide mortgage statements and information to borrowers who aren’t in forbearance. This will reduce routine phone calls and give servicers more time to assist borrowers in forbearance, where the CFPB will be focusing its attention. Servicers can also use web applications to display personalized messages regarding forbearance information and repayment options to borrowers who are in forbearance.
Help borrowers settle on a plan that works for them
As Director Uejio has already pointed out, “protecting economically vulnerable consumers is core to the mission of the CFPB.” Therefore, servicers must make it their mission to help borrowers in forbearance figure out how to get back on track.
The GSEs have offered borrowers several repayment options. They can pay what they owe, extend their forbearance (as 70% of all loans in forbearance already have at least once), or move into a servicer loss mitigation plan, which could include a loan modification.
Track forbearance and post-forbearance plans using robust mortgage servicing software
With so many loans still in forbearance, servicers need an efficient way to track the specific terms/details of each borrower’s forbearance and post-forbearance plans. Mortgage servicing software must be able to accommodate payment deferment and other loan modifications.
Leading-edge mortgage servicing software with extensive loss mitigation capabilities, including a forbearance/deferment window, allows servicers to track:
- Forbearance plan details on the loan level
- Terms: number of months, starting and ending dates
- Borrower details (e.g., type of hardship, status of the forbearance plan)
- Post-forbearance plans
- Repayment plans (e.g., reduced payments)
- Loan modifications (e.g., new term length, interest rate)
- Deferment of interest
By using mortgage servicing software to track forbearance and post-forbearance plan details, servicers can more efficiently handle the increased number of modifications they are going to see in the coming months. Mortgage software vendors should be available to help servicers navigate the forbearance and post-forbearance processes.
Servicers who make it their mission to communicate effectively with borrowers and credit bureaus throughout this process, who are ready to help borrowers find a plan that works for them and who use robust mortgage servicing software to track and monitor the process will be well positioned to manage the forbearance process efficiently. The right software allows servicers to guide borrowers through the forbearance period and return their mortgage to a current status with minimal stress.
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