Managing the Massive Volume of Forbearance, Repayment and Loan Modification Programs Today and in the Future

By George FitzGerald

The COVID-19 pandemic has created tremendous hardship and turmoil worldwide. Aside from the devastating impact on human life, the outbreak is having a profound effect on the U.S. economy, and is clearly distressing the housing and mortgage markets.  

In addition to its adverse impact on home sales, the pandemic has made it difficult for millions of Americans to pay their mortgages because of massive layoffs, furloughs, reduced wages and decreased commissions.

Fortunately, there is some relief for homeowners. In March, federal and state governments, as well as a number of financial institutions, stepped in to help those impacted by COVID-19. The Coronavirus Aid, Relief and Economic Security (CARES) Act, for example, signed into law March 27, provides broad protections for homeowners. Borrowers with federally backed loans, and who are suffering hardships related to COVID-19, can request short-term relief on their mortgage payments for up to 360 days.

Private banking institutions are offering payment deferrals as well as other relief options; and many have placed a temporary foreclosure moratorium on residential properties, which is also a requirement of CARES.  Additionally, various states have their own laws when it comes to foreclosure moratoriums, payment forbearances, and permanent loss mitigation solutions.

The Recent Past

Prior to the current crisis, loans in default were at record lows. According to Black Knight’s January Mortgage Monitor, the national delinquency rate fell by more than 5% in December, reaching its lowest recorded level since Black Knight began tracking the data in 2000.

The decline in mortgage delinquencies was certainly positive for the mortgage market, and the economy as a whole. However, the decline also led many default servicing operations to decrease staffing levels. And now, with an influx of borrowers requesting forbearance or other loan assistance, many servicers are experiencing considerable strain on their operations.

Compounding the situation is the need to shelter in place and practice social distancing, which are slowing business operations and making it difficult to ramp up staffing levels even as restrictions are being lifted at the state and federal levels.

Similar to the financial crisis in 2008, servicing operations may not have the right technology solutions or required staffing levels to handle the unprecedented volume of forbearances and borrower inquiries occurring today. Future challenges remain as forbearance ends for millions of homeowners, and prompt loss mitigation decisioning will be required.

The Right Technology

With the mortgage servicing challenges caused by the pandemic’s speed and severity, servicers can benefit significantly from a scalable technology solution that not only automates the loss mitigation workflow from end-to-end, but also is quick to implement and easy to use. This would certainly help servicers swiftly scale to support skyrocketing volume. It’s also critical that the technology is flexible enough to support the myriad of government and private sector COVID-19-related programs and policies.

This technology also needs to support all existing regulatory requirements resulting from the 2008 U.S. financial crisis. This will become especially important post-forbearance, when servicers will be faced with a deluge of repayment plans, loan modifications, foreclosure proceedings, short sales and mortgage releases.

Keeping up With Forbearance Volume

Black Knight, a leading provider of technology solutions to the mortgage industry, is uniquely situated to help clients adapt to the current crisis, by virtue of our robust automated servicing and default technology. The proven Black Knight Loss Mitigation? solution, for example, is not only scalable and flexible, but also delivers end-to end functionality, built-in workflow and quality control capabilities. The solution, which is tightly integrated with Black Knight’s MSP? loan servicing system, enables servicers to automate the management of forbearance today and better handle the repayment plans and modification programs needed in the future.

The Black Knight Loss Mitigation solution can be implemented in just a matter of weeks, enabling servicers who already use MSP to quickly get up and running with a robust, automated solution. Plus, with its highly intuitive interface, Loss Mitigation is easy for the team to learn and use, so a servicer can ramp up quickly to meet today’s demands.

In addition, this Loss Mitigation solution includes a streamlined process to evaluate borrowers for a forbearance plan – its workflow enables users to create plans immediately. Another crucial benefit of Loss Mitigation is that it systematically stops late charges, suspends foreclosure actions and automates appropriate credit bureau reporting on affected loans, all of which are required by the CARES Act.

Flexible to Support a Variety of Modifications Plans

When the forbearance period for borrowers ends, servicers will benefit from a key feature of the Black Knight Loss Mitigation technology, which is the ability to evaluate borrowers for loss mitigation options regardless of the investor, insurer, loan type, policy or program. And crucially, the solution supports all standard loss mitigation plans and regulatory requirements that were enacted prior to the current crisis.

Advanced Automation

Leveraging advanced business rules and logic, the Black Knight Loss Mitigation solution guides users through each step of the process, and drives work assignments between the underwriter and quality-control unit to streamline the process. In addition, validation points throughout the workflow are included so critical information is not overlooked, helping reduce risk.  

Seamless Integration With Black Knight’s Best-in-Class Servicing System

The Loss Mitigation solution seamlessly integrates with our best-in-class MSP servicing system and automatically updates MSP with changes. Using both the MSP and Loss Mitigation solutions, servicers can more easily manage and automate forbearance and modification programs, enabling teams to focus on what matters most: the borrower.

Be Ready for Today and the Future

No one knows exactly when the current crisis will subside or end. The best course for servicers now is to help homeowners weather the storm and prepare their operations for a continuing influx of forbearance requests, as well as the need to decision a surge of loan modifications and repayment plans. The more servicers automate and track these processes, the more they can keep up with today’s volume, and be ready for any future crisis situations.