(Switching Gears) Nate Johnson: Will You Be Able to Transition Staff When the Market Shifts?
Nate Johnson is Executive Vice President and Mortgage Business Leader with SLK Global Solutions, Dallas. He has more than 20 years of progressive operations, technology and sales leadership.
(This is part three of a four-part series, “Switching Gears,” examining how fourexecutives–Paul Anselmo of Evolve Mortgage Services; Michael Franco of SitusAMC; Nate Johnson of SLK Global Solutions; and Bill Tessar of CIVIC–plan to transition employees from loan production to mortgage servicing once the refinance boom ends and forbearance cases need to be solved.)
Winston Churchill is just one of several people credited with the saying, “Plans are of little importance, but planning is essential,” but all of them were right. Our industry provides regular examples of what happens when companies don’t plan ahead. Of course, it’s impossible to plan for the unknown, as the past year has reminded us. But it’s always possible to plan for what’s likely to happen—and right now, we have some idea of what that might be.
For example, the Federal Reserve has already signaled it’s not going to raise short-term interest rates for the foreseeable future. Since these rates almost always go hand in hand with 10-year Treasury or mortgage rates, we’re likely to enjoy another year of historic origination volume. However, if we’re going by the most recent outlook from the Mortgage Bankers Association, a different sort of picture may begin to emerge by the fourth quarter, when rates may start moving up.
By this time next year, rates could be higher by a point or two, which would place them at around 4.5 to 5 percent. Historically speaking, that’s still cheap money, but it would likely bring an end to the extended refinance boom that has been driving volume. There will be other challenges, too, including a lack of housing inventory that has been intensified both by a recent pause in new home construction and current foreclosure moratoriums.
So are we looking at a downturn? Yes, but in my view, it’s not going to be significant enough to see a huge migration of people out of the mortgage industry. It will, however, require every organization to think hard about how to best use their personnel resources to come out ahead.
Moving Staff to Servicing
There are many companies that both originate and service loans and those that do will be looking to shift their resources from origination to servicing. Currently, most lenders are working furiously to fulfill all the tasks that come with originating loans, including pre-underwriting, processing, document gathering, underwriting, clearing stipulations and third-party ordering of services. Let’s say you take some of those functions and hand them over the fence to servicing. Are they just as applicable?
For the most part, yes—the same capabilities needed to originate loans are the same as those needed to modify loans. The process is still about making sure the borrower can pay, pulling title commitments, and making sure the appraisal value hasn’t moved significantly. The only thing that’s missing is the transfer of money. That being said, nothing’s easy in the mortgage business. For companies that hope to leverage existing origination teams to manage servicing functions, it’s going to be critical to take the opportunity now to cross-train people.
To be sure, the companies that already provide their staff with holistic training from every angle of the business are going to be better positioned for the market shift than companies that train their staff in silos. When someone has a well-rounded base of knowledge in the mortgage business, it’s far easier to move them from processing FHA purchase loans to FHA modifications, because they understand the differences.
By and large, our clients do a really good job at cross-training staff. But even so, there can be training gaps. When I speak with executives and underwriting managers, I often hear that they can’t send certain loans to their processing team because they’re not trained to work with them. If you don’t have the talents and skills already in house, you may find yourself relying on the assistance of third-party service providers.
Who Will Need Help?
The reality is that a lot of seller-servicers got into the servicing business because it was easy money with low default rates. When defaults rise, as they eventually will, servicing will stop being treated as a cash cow. Once delinquent loans hit certain buckets—whether 30, 60 or 90 days late—many servicers will start having to send business off to special servicers.
There are unknowns as well, especially with a new administration in Washington. Two of the biggest involve whether the federal government will provide refi programs similar to HARP or HAMP, or whether the Consumer Financial Protection Bureau will start taking a more active role in the servicing industry. The FHA, GSEs and investors will also likely come up with guidelines for loan modifications and loss mitigation activities. All of this means companies need to start thinking about the time and resources they’ll need for compliance and risk management.
In many cases, it will make sense to utilize a partner to help make the transition from a high percentage of performing loans to a rising default climate. By outsourcing, lenders can also have a vendor handle the portion of their loan portfolio that needs the most work and still keep all their loans within their servicing realm, which can be a much less expensive strategy than transferring mortgage servicing rights to a special servicer.
A partner can also help mitigate losses by focusing on newly nonperforming loans first and getting them back to performing as soon as possible. Typically this strategy involves setting up a single point of contact for every customer and leveraging call centers with collection licenses to monitor payments and offer payment plans. If a borrower chooses to get a loan modification or, if they are not yet under a forbearance plan, the servicer and/or service provider can initiate and track these functions.
This does two things for servicers—it enables them to extend their operations and retain clients, and it frees them from the need to hire more people internally to manage defaults and all the added costs, risks and overhead that come with it. If servicers choose to go this route, it helps to have a partner that can provide end-to-end support that includes other tasks and services associated with defaults, such as taxes, insurance and title work.
My company is already in the planning stages and pivoting for when the market shifts. Our focus is now concentrating on default servicing capabilities and transferring resources from our origination team to servicing, particularly in the areas of loan modification, loss mitigation and foreclosure support. Fortunately, we have experience working through the last housing crisis, so we have a default services playbook ready.
No amount of planning can entirely eliminate risk, however. Mortgage rates could go up at any time—even tomorrow. We only need to go back nine to ten months at the start of the pandemic to see how quickly the market can change. But if you do plan today, you have a better ability to pivot when the music stops.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)