Preparing for the Day After

One month down. As I write, and you read, from our respective home offices, we are entering the second month of two new realities: (1) the temporary reality of extreme physical isolation as our country figuratively comes together by staying home to flatten the curve and give the doctors, nurses, and others on the front lines—our 21st century American heroes—the best chance to defeat the novel coronavirus; and (2) the more permanent new reality of a world forever changed by this new threat. Some of those changes are predictable, and others have not yet become clear. The current lockdown will not last forever and when it ends things will be different from how they were before and also different from the way they are now.

We can predict that social distancing, increased hand washing, no longer shaking hands as a greeting, restrictions on large crowds, staying home at the slightest sign of illness, and perhaps increased temperature checks in public places will be the new norm. Shortages of toilet paper will probably not persist, but shortages of small-format hand sanitizer might. But there will be other, bigger changes in the long run, which are harder to predict with any certainty.

We know from experience in our lifetimes that change can happen quickly and that we, as Americans, adapt. The attacks of September 11, 2001, were very different from what we are now experiencing, but the way that they changed our culture, our perspective, and our lives overnight is analogous. An initial period of uncertainty and fear gave way to longer-term changes, even when air travel (for example) resumed. Not all of the changes happened right away, but we as a nation quickly got used to more security restrictions, and to things no longer being the way they were. That experience is instructive here as well.

Now, as then, in addition to striving to keep our families, our employees, and our country safe, we are focused on keeping our businesses and our industry working through the legal, logistical, and secondary-market challenges that the current crisis has brought. In many ways, the laws and regulations governing our industry—which we are used to thinking of as impediments to creativity and innovation—have proven flexible when necessary. For example, state regulators rushed to provide guidance on loan originators working from home, even where that had not previously been permitted. In other instances, government agencies have responded with less flexibility. We have also seen at least one state government reacting to what it perceived as abuse by industry service providers of the industry’s status as “necessary” or “essential,” by significantly restricting those service providers’ activities.

The other precedent that we should learn from is the last financial crisis. We enter this crisis with a regulatory framework and servicer competencies in loss mitigation already in place. We also have the hard-earned knowledge that buying time for borrowers in distress helps the industry and the country as a whole, but that legislation and regulation are necessary to give servicers the ability to provide that flexibility.

From a regulatory perspective, I expect regulators to pay more attention to lenders’ financial stability. Some of that will take the form of state regulators (in addition to New York) paying more attention to business continuity and disaster preparedness for non-depository lenders. It may also take the form of regulators being more sensitive to the business realities that lenders face. But regulators will be laser-focused on consumer protection, and any failure to accommodate borrowers in these difficult times (especially those on the front lines of fighting the coronavirus or of delivering essential goods and services) poses a significant “headline risk.”

Despite the tremendous challenges facing our country (and the world), I remain optimistic about the future. Innovation comes from solving problems, and our current environment is full of problems to solve. Looking forward, I see a lot of changes to our business and our lives. Some of these changes, like the shift to automation, were already underway, but they will undoubtedly accelerate. Consumers, lenders, servicers, service providers, and regulators alike will have increased experience and comfort with remote and paperless processes. Like with distance learning, telemedicine, and remote court appearances, there will be strong incentives to expand these innovations for the benefits of increased convenience and efficiency, rather than trying to return to “normal.” Of course regulators have a say in whether those innovations will be permitted, but they, too, may find their hands forced by events that are larger than all of us. For now, stay safe and strong.

Mitchel H. Kider is the Managing Partner of the financial services law firm Weiner Brodsky Kider PC.