Mike’s (Mortgage) Minutes: Monitoring the "Foreclosure Trickle" - The CFPB is Watching Every Move

What will happen when the foreclosure moratorium ends? What will happen if robust and flexible forbearance programs come to end?

These two questions have been discussed in many white papers for the last 6 months or so. The best, and most concise, I’ve seen yet is from First American (https://blog.firstam.com/economics/will-the-end-of-forbearance-trigger-a-wave-of-foreclosures). Best quote from the article:

“a one percentage point increase in annual house price appreciation results in a 0.33 percentage point decline in the transition rate, or 6,700 fewer foreclosures when all other factors remain unchanged.”

A couple months back I wrote/posted about the tremendous amount of home equity many in this country have because of rising home prices. This increased equity provides tons of options for borrowers and mortgage services.

How should Mortgage Servicers navigate this knowing the CFPB is watching their every move to ensure every homeowner gets every possible chance to stay in their home?

The answer is simple…the service approach is not: Adopt a financial advisor mindset. Stop thinking about just mortgages.

Borrower-centric is the key. Look after EVERY aspect of their financial lives, not just their home. Tactical steps the CFPB will be looking for include:

• Did you ask about every aspect of their financial lives to ensure foreclosure was the only option?
• Did you ask them about savings elsewhere (mutual funds, 401K, etc.) Did you ask them to consult with their 401K representative to find out details of how a 401K loan could work or if it’s possible to redraw funds early? Yes, this is a sensitive topic, but if someone needs to take a 10% penalty to stay in their home, it could still be the best solution at that given time.
• How is the credit card situation?
• How is their job situation? Have you helped them consider alternative fields of work in their area if they aren’t currently employed?
• Did you consult with them about ways to save money on their personal balance sheet?

Yes – There are regulations around many of these topics. But asking these situational questions does not mean you have to offer a solution. It means you’re showing you care about understanding everything and that you are there to help. It’s no secret financial literacy is a challenge in this country, so simply gathering the facts about a situation is a good first step. Your end result may be: “I’d suggest you call a financial advisor – they will talk with you for free initially. See what they have to say and please call me back.”

Involuntary sales of homes to avoid foreclosure will occur. On the positive side, this avenue exists due to home equity being higher than the mortgage balance. On the negative side, the borrower is still being ‘forced’, due to their financial situation, to leave their home and seek shelter elsewhere.

The CFPB will be looking at foreclosures and involuntary sales in the same way. Did you consult with the borrower as their financial advisor and a life coach?

Mortgage Servicers should look at their default groups and think about training their service agents from that ‘financial advisor and life coach’ mentality. Stop tracking talk time in the call center. The quality of care from human to human will be judge at every level. Not only is this probably the right approach, it’s also going to be less costly in the long run. Run the exercise yourself – Increase your talk time of your agents by 100%, run the math on your salaries to service your default loans, and see what that number is. I’d be willing to bet anything that number is less than 10% of any potential fine/penalty/costly lawsuit/in-house lawyer’s salary figure. Not to mention the headline risk you would have avoided if actions are not taken.

Coming from a risk management lens, this strategic approach followed by tactical training measures for your staff will save you MILLIONS!

If you want more ideas or just simply to chat, shoot me a note. I love chatting about this stuff and happy to share thoughts/ideas with anyone in the industry.

About Author

Mike Smith

Mike Smith is a Client Advisor at Lockton focusing on complex risk solutions. Management Liability, in the E&O, Cyber, Fidelity Bond, and D&O arena, is his focus for innovative risk-transfer alternatives.