COVID-19: Implications and next steps for mortgage lenders
April 22, 2020
State of the COVID-19 crisis
Consumer households are already facing financial hardship as a result of the coronavirus outbreak. Millions are now experiencing the realities of unemployment and millions more are likely to in the coming months. While some of these consumers will receive relief in the form of unemployment insurance, in most cases it will not be enough to cover basic living expenses plus mortgage payments.
What’s happening?
The impact of COVID-19 and the intervention of the government will have far-reaching implications for loan servicers. We see this happening in three overlapping waves:
- Wave 1 – Forbearance: There will be a surge of inbound calls from borrowers seeking to understand their options and most will go down the path of forbearance.
- Wave 2 – Outbound Collections: Servicers will see an increase in the number of 30+ days past due accounts. This will consist of borrowers who failed to proactively contact their servicers and those who are not in government-backed mortgage programs.
- Wave 3 – Loan Modifications/Liquidations: Many borrowers will be unable to regain their financial wellness and resume paying their mortgage by the end of the forbearance plan. They will need some sort of repayment plan, modification or liquidation.
What should you be doing now?
Responding to these challenges will be a defining moment for lenders and will have major brand implications. Our recommended actions include:
1. Command center:
Create a COVID-19 task force or command center within your organization.
2. Capacity:
Look at your internal workforce for transferable skills that can be repurposed and at external third parties that can quickly scale and provide relief.
3. Digital workforce:
Additional staff will need to be onboarded remotely and enabled to work from home efficiently and securely.
4. Process:
Manage process changes resulting from revised guidelines, ensuring that these changes are well documented, communicated to employees and include appropriate control points. Review your loss mitigation processes to ensure they are efficient and capable of supporting a large increase in volume.
5. Technology:
The COVID-19 challenge should not be viewed as a short-term problem. While “people” can serve as a temporary solution, now is the time to invest in technology that will drive long-term efficiency through borrower self-service and automation.
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What should you be doing going forward?
The pandemic is likely to accelerate the adoption of digital capabilities across the industry. Many consumers will engage with digital tools and virtual experiences that they would otherwise have avoided. Lenders will become comfortable with a remote workforce and begin using collaborative tools that make interactions with customers and fellow employees more seamless. For these reasons, actions should be taken with one eye on the future. Don’t just think of how a solution solves a short-term problem. Rather, think strategically about how solutions might fit within your organization in the longer term.
Across mortgage origination and loan servicing, lenders should take immediate action to address challenges that have already been realized, and to get in front of those we know are coming. You should consider the following actions now to successfully navigate the waves that are coming:
- Scale operations
- Adapt new ways of thinking
- Automate with technology
- Operate with agility
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