Sponsored Content from Black Knight: Servicing Technology in the Era of COVID-19 Regulations
George FitzGerald is EVP and Chief Operating Officer for the Black Knight Servicing Technologies Division.
Mortgage servicers often must navigate a fluctuating regulatory environment that poses varying degrees of complexity and enforcement as economic circumstances and political administrations change. When unpredictable catastrophic events like the COVID-19 pandemic occur, a tidal wave of challenges can quickly disrupt the servicing industry – requiring swift action and adaptation to address the groundswell of issues that arise.
The COVID-19 pandemic has resulted in millions of Americans suddenly facing job losses and financial hardships, which directly impacts their ability to pay their mortgages. Mortgage servicers are faced with operational and regulatory compliance challenges to address the new and evolving COVID-19 forbearance and foreclosure moratorium requirements. They must address processing high volumes of borrower inquiries and forbearances, while also planning how to handle the loans after the forbearance period ends.
In turbulent times, the right servicing system can provide the operational agility servicers need to take care of their customers, communicate proactively, and address rapidly changing regulatory requirements, like the CARES Act, Equal Credit Opportunity Act, and the Fair Housing Act, among others.
An Evolving Regulatory Environment
Enacted in March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows borrowers with federally backed loans to request an initial 180 days of forbearance and another 180 days once that period is over. The GSEs also require servicers to contact borrowers before the initial six months have expired to find out if forbearance-plan extensions or other options are needed.
In April 2020, the Federal Housing Administration (FHA) introduced the COVID-19 National Emergency Standalone Partial Claim, which allowed eligible borrowers to defer the repayment of forborne amounts through an interest-free subordinate mortgage due when the first mortgage is paid. Fannie Mae and Freddie Mac later introduced COVID-19 payment deferral programs, allowing servicers to defer up to 12, and in some cases up to 18, months of delinquent mortgage payments to the end of the loan term as a non-interest-bearing balance.
Beyond the CARES Act, additional provisions have been extended to borrowers needing assistance, including:
- Extending the foreclosure moratorium for homeowners through June 30, 2021
- Extending the mortgage payment forbearance enrollment window until June 30, 2021, for borrowers who wish to request forbearance
- Providing up to six months of additional mortgage payment forbearance for borrowers who were on active forbearance as of Feb. 28.
It is important to note that the situation regarding the economic regulations surrounding COVID-19 remain very much in flux; these extensions and protections could change in the near future.
As the COVID-19 forbearance protections are extended, servicers must adapt to the new deadlines and requirements to address compliance. The Consumer Financial Protection Bureau (CFPB) has reported that it plans to actively enforce the existing regulations of the CARES Act, making compliance a top priority for servicers.
Equity and Inclusion Mandates
In January 2021, President Joe Biden signed an executive order committing to revitalize enforcement of fair lending laws. To support fair servicing, regulators are expected to comply with the Equal Credit Opportunity Act and Fair Housing Act, along with state anti-discrimination laws to support the Biden administration’s equity agenda.
To adhere to the Biden administration’s financial oversight initiatives, servicers may need to align their fair servicing policies and procedures with the more stringent regulatory environment. Servicers may be required to demonstrate that they have engaged in sufficient outreach to offer borrowers of all races and ethnicities appropriate loss mitigation options.
In a time of record forbearances, this fair servicing mandate will require support from advanced servicing technology that provides the tools and audit trails required for equity compliance.
Navigating Compliance with Servicing Technology
At the onset of the COVID-19 crisis, mortgage servicers had to assist high volumes of distressed borrowers, which presented significant operational challenges. They had to quickly transition to remote operations and field a sudden influx of borrower calls, all while implementing new procedures to comply with a wave of new requirements from regulators, legislators and investors. Additional challenges will continue to emerge in the future, including the rolling expirations of forbearance plans and a large backlog of foreclosures.
Servicing technology can play a significant role in the ability for servicers to rapidly adapt to changing market conditions and regulations. For example, after the CARES Act was enacted in March 2020, servicers were inundated with borrower calls and forbearance volumes climbed exponentially. Servicers that had robust, customer-facing digital applications, with intuitive capabilities and multiple communication channels, were able to effectively handle the influx of borrower inquiries. These same communication channels will be invaluable during the post-forbearance period when servicers must contact thousands of borrowers.
Managing high volumes of forbearances and program extensions also presents many challenges that advanced servicing technology can address. Servicers must manage forbearance start dates, auto-extend forbearances, manage forbearance periods when borrowers make a payment, etc. Servicing technology that is configurable with automated workflows enables servicers to manage the complexity of high volumes of forbearances with multiple end dates, extensions, and borrower communication requirements.
Servicers must be able to quickly identify and address operational challenges like these on an ongoing basis to maintain effective borrower assistance, while complying with the CARES Act and other federal, state and local requirements. Servicers that have the technology and up-to-date regulatory compliance functionality in place to rapidly adapt to the changing regulatory environment and operational demands have a clear advantage.
The COVID-19 pandemic brought to light the value of having configurable servicing technology with automated workflows and robust regulatory compliance capabilities. Having a servicing technology partner that is focused on understanding evolving market demands, regulatory requirements and GSE programs enables servicers to be agile when new regulations emerge.
Regulatory compliance is constantly evolving, so it is important your servicing technology partner keep up with today’s requirements but also be ready to adapt to whatever comes in the future. At Black Knight, our MSP® loan servicing platform is continuously updated based on feedback from our clients. MSP is also regulated by the same agencies as our clients – the Federal Financial Institutions Examination Council, which includes the CFPB, OCC, FDIC, NCUA and FRB.
By working closely with their technology partners in times like the COVID-19 pandemic, servicers can better understand how to leverage the functionality of their systems to meet unique operational demands, support their compliance efforts, and stay connected to borrowers.
The Post-Forbearance Future
Looking ahead, servicers will need to transition into the post-forbearance landscape and navigate a complex matrix of federal, state and investor requirements. They will be challenged with managing the massive volume of loans that are ending their forbearance periods and foreclosure moratoria – requiring the servicer to contact thousands of borrowers.
When the borrower’s forbearance has ended, servicers will have to engage in active loss mitigation efforts, including various workout plans, payment deferrals or loan modifications. To address these challenges and many more, servicers will need to understand the various complex compliance requirements and how to implement them in their organization.
Having an advanced servicing platform that evaluates loss mitigation options regardless of the investor, insurer, loan type, policy or program can facilitate quick decisioning and help servicers remain compliant. Integrated default solutions can also help servicers address the challenge of processing a surge of delayed foreclosures once the foreclosure moratorium period ends.
Black Knight has already been working with its servicing clients to address the challenges of the post-forbearance period of the COVID-19 crisis. During this challenging time, we have worked with our clients to deliver the technology and support required to meet the needs of distressed borrowers. We have a shared mission to keep as many borrowers in their homes as possible.
As the post-forbearance period approaches, Black Knight’s MSP servicing platform is prepared to help servicers meet the needs of their borrowers during the next phase of the COVID-19 era. MSP is integrated with a suite of Default solutions to support servicers with their forbearance, loss mitigation, foreclosure, bankruptcy, claims and invoicing processes. It is critically important that we address the challenges servicers are facing today, but also look ahead to what may be on the horizon in terms of large-scale industry shifts, which will be pivotal to navigate.
(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at firstname.lastname@example.org or 203/834-8832.)