What post-pandemic subservicing may look like
May 30, 2023 6:41 AM
Delinquencies have been at or near record low but a recession is in the forecast, which raises questions about how the mortgage industry should prepare for the next credit cycle.
To get a sense of this, we asked Adam Saab, vice president and head of early payment default at Cenlar, about his outlook for loan performance and post-pandemic loss mitigation policy.
In that conversation, Saab weighed in on how the role of call center staff is shifting, and how borrowers who have had forbearance will need to adapt too as times change and that require more outreach.
He also discussed how new loss mitigation policies can be applied in times when high rates make it tougher to implement modifications and whether COVID-19 forbearance will have a successor.
The following are excerpts from the interview with Saab, edited for clarity.
To get a sense of this, we asked Adam Saab, vice president and head of early payment default at Cenlar, about his outlook for loan performance and post-pandemic loss mitigation policy.
In that conversation, Saab weighed in on how the role of call center staff is shifting, and how borrowers who have had forbearance will need to adapt too as times change and that require more outreach.
He also discussed how new loss mitigation policies can be applied in times when high rates make it tougher to implement modifications and whether COVID-19 forbearance will have a successor.
The following are excerpts from the interview with Saab, edited for clarity.
We hear a lot of mixed things about the trajectory for loan performance. What trends are you seeing?
Each portfolio is a little bit different, and obviously, as a subservicer we've certainly got a large variance in our portfolios.
Based on our forecast models, mostly what we're looking at from a delinquency standpoint is what happens at the end of the borrowers' COVID forbearances, and are they taking advantage of some of those workouts that are out there? Obviously, with the end of the national emergency there are varying deadlines for government forbearances during the rest of this year. With the government-sponsored enterprises, I'm hearing that direction is coming out this month.
Generally, we're expecting to see our forbearance volume trend down. We haven't seen an abnormal amount of people rushing to get forbearances knowing that they're going to end.
Everybody wants to talk abouta potential recession and readiness for that. Is it going to happen? If it is, when is it going to happen? Nobody has a crystal ball but we're preparing for it, to make sure that we've got levers to pull from a staffing perspective.
Based on our forecast models, mostly what we're looking at from a delinquency standpoint is what happens at the end of the borrowers' COVID forbearances, and are they taking advantage of some of those workouts that are out there? Obviously, with the end of the national emergency there are varying deadlines for government forbearances during the rest of this year. With the government-sponsored enterprises, I'm hearing that direction is coming out this month.
Generally, we're expecting to see our forbearance volume trend down. We haven't seen an abnormal amount of people rushing to get forbearances knowing that they're going to end.
Everybody wants to talk about
What do you think of the ongoing policy changes to loss mitigation in the post-pandemic landscape?
With varying types of borrowers that are exiting forbearance , hopefully we can get them into workouts. With the [Federal Housing Administration], for example, we look at the recent changes in the market where we used to have 25% of the principal balance available for a partial claim, now they can go up to 30%.
We're retraining our call center agents as borrowers are coming off forbearances. We're going through an effort to have the appropriate conversations about the new workout options that are out there.
FHA came out with some that went into place recently that are streamlined and very similar to the COVID options. The GSEs just came out witha new deferral program that was a little bit more advantageous.
There is a lot of talk about what new tools can we add in the loss mitigation that's going to help these borrowers? There's got to be a change in policy for a lot of the various agencies to be able to help or we are going to see some delinquency spikes, as we kind of go forward.
We talk about recession a lot with our clients internally to look at what that would mean and how would we react to it? We might need some type of more generic forbearance.
If we have a recession, we dokind of have a playbook. That playbook all kind of started with the tools we had to deal with disasters like hurricanes, and we've evolved further from that with COVID.
We're retraining our call center agents as borrowers are coming off forbearances. We're going through an effort to have the appropriate conversations about the new workout options that are out there.
FHA came out with some that went into place recently that are streamlined and very similar to the COVID options. The GSEs just came out with
There is a lot of talk about what new tools can we add in the loss mitigation that's going to help these borrowers? There's got to be a change in policy for a lot of the various agencies to be able to help or we are going to see some delinquency spikes, as we kind of go forward.
We talk about recession a lot with our clients internally to look at what that would mean and how would we react to it? We might need some type of more generic forbearance.
If we have a recession, we do
How do you handle the borrowers that kind of go radio silent and are hard to get to at the end of forbearance?
You have borrowers that just don't engage with the servicer or any type of workout. For some of them it might be a pride thing or they just don't think there's an option, but there are options out there.
With forbearance, everything was kind of suspended for a long time and I think a lot of people have to be retrained to make payments. We're reaching out, we're sending in letters or making phone calls, and we're doing everything we can to tell people we're here to help and have these options.
We've talked with some of our clients as a subservicer and let them know we can send door knocks out, get creative and do things to get people's attention but ultimately there is a limit. We try every way we can, but at the end of the day, some of them just don't engage with us.
With forbearance, everything was kind of suspended for a long time and I think a lot of people have to be retrained to make payments. We're reaching out, we're sending in letters or making phone calls, and we're doing everything we can to tell people we're here to help and have these options.
We've talked with some of our clients as a subservicer and let them know we can send door knocks out, get creative and do things to get people's attention but ultimately there is a limit. We try every way we can, but at the end of the day, some of them just don't engage with us.
What has your experience with the Homeowner Assistance Fund been like?
It's been a good program but it's also been a challenge sometimes with all the variations at the state level. We want to make sure that borrowers are aware that it's out there for any of the states that are participating. We encourage every borrower to take advantage if their state participates. We've got a dedicated team that works with the HAF requests.
Do you think permanent, expanded use of forbearance could work as a concept?
There probably could be some type of overarching forbearance that could have a plug-and-play component into a particular situation that comes up. Forbearance is probably going to have some future use that's different than what we've seen historically.
Would the industry maybe experiment with that on its own even if government agencies didn’t get involved?
When we're having servicer roundtables, it comes up. I don't know who's going to potentially be first to act on it.
What do you think of the solutions for loss mitigation in a higher interest-rate environment such as the 40-year modification?
It's tough to get payment reduction in that situation unless you have some kind of term extension, or if it's FHA you can utilize partial claims up to 30% of your UPB. You can also use a combination of those two strategies.
