COVID-19 and its Impacts on Mortgage Servicing Operations

COVID-19 and its Impacts on Mortgage Servicing Operations

The economic impact of COVID-19 has required servicers to make many process adjustments within their operations. From the beginning, as servicers were working to quickly and diligently help borrowers who needed assistance, operational challenges began to arise. Now, almost one year later, servicers are still facing these and other emerging challenges. While recent extensions of the foreclosure moratoriums and forbearance expirations have helped to mitigate short-term risk, when those plans do expire later in 2021, these difficulties are likely to become even more pronounced.

Based on Black Knight’s position in the mortgage industry, we are in close contact with our servicing clients. It is through these connections that we understand that the ability to quickly identify and address these challenges on an ongoing basis is crucial for servicers to maintain efficient and effective borrower assistance, while complying with the CARES Act and other requirements. And, of course, the faster that operational issues can be resolved, the less strain imposed on a servicer’s day-to-day processes as well.

Initial Challenges

Looking back on the first few months of the crisis, one of the biggest challenges servicers faced was putting systems and processes in place to handle the massive influx of customer inquiries. As was the case with many other businesses, servicers were transitioning to a remote workforce, making it difficult to field these urgent borrower calls.

By the beginning of May, there were close to 4 million borrowers in forbearance plans, illustrating just how high the volume climbed in a very short period of time.

Servicers that offered robust customer-facing digital and online applications with intuitive capabilities and clear communication mechanisms to easily stay connected to borrowers were in a better position to handle the influx.

Blocking and Tackling

Servicers have also been doing a considerable amount of blocking and tackling since the crisis began. From the suspension of auto-drafting and late fees to determining what information bills and escrow reports should include, numerous issues have cropped up.

Under normal circumstances, these types of issues are easily handled, even when a large number of borrowers are affected during a natural disaster. However, with the unprecedented volume of loans impacted during the COVID-19 crisis, operational and compliance issues have quickly become significant.  

Configurable, flexible servicing systems that can be rapidly updated are key to helping servicing clients successfully address these types of ongoing challenges.

Investor Reporting

Another critical issue for servicers is the impact of FHFA forbearance-repayment deferral plans on investor reporting. With deferral plans, servicers are required to combine the borrower’s missed payments, including principal, interest and escrow, and report the total sum – not a breakdown – to investors. 

But here’s the dilemma: what happens with IRS reporting when the borrower pays off the loan? The IRS will want to know what portion of the payment consisted of interest. Being able to accurately track this information — potentially up to 30 years on some loans – will be complicated to say the least.  

Loan Decisioning

Servicers have been faced with the daunting task of managing the massive volume of loans that end their 180-day forbearance periods. And, later this year, plans will likely begin reaching their final expirations, adding more complexities into the mix.

As a result, throughout most of 2021, servicers will be engaging in active loss mitigation efforts. This will most likely take the form of a waterfall approach to various workout plans, loan modifications, or – ultimately in the worst case scenario – starting foreclosures.

To help avoid the latter, there may be more mortgage-relief programs enacted this year, especially with the change in administration. A newly emboldened CFPB is quite likely, and we may see new regulatory moves geared toward helping struggling homeowners.

In addition to contacting each customer on a COVID-19 related forbearance, servicers need to be fully apprised on the latest regulatory enhancements and compliance requirements – on top of the myriad loss mitigation plans already in place.

Addressing the Challenges

Black Knight’s flexible, scalable and integrated servicing technology has helped lenders of all size portfolios address their COVID-19 related challenges. While our technology already included the automation and capabilities needed during these difficult times, over the course of last year, we listened to the needs of our clients and made many critical, ongoing technology enhancements to help them tackle emerging challenges. 

How a Best-in-Class Loan Servicing System Can Help

Black Knight’s MSP® servicing platform automates all areas of loan servicing, helping increase oper­ational efficiencies, reduce costs and mitigate risk. Servicers using MSP have been able to take advantage of several built-in features to help during the COVID-19 crisis. These include auto-termination of borrower late fees, suspension of foreclosure actions on eligible borrowers, and preventing adverse borrower reports to credit bureaus, all of which are required by the CARES Act.

The MSP system also enables servicers to easily identify borrowers impacted by COVID-19 and monitor for a final resolution when the forbearance period concludes. One of the many MSP enhancements Black Knight made last year enables servicers to suspend recurring check drafting without having to delete customer data from the system.

Comprehensive, Automated Loss Mitigation Technology

Black Knight’s comprehensive Loss Mitigation℠ solution, which is tightly integrated with MSP, has helped servicers keep up with the high volume of forbearance requests, extensions, deferral plans and other workout programs. Servicers using Loss Mitigation have benefited from end-to-end automated workflow and quality control features to simplify their decisioning and reduce risk. Additionally, this Loss Mitigation solution is highly intuitive, making it easy for employees to learn and use.

Several capabilities were added to our Loss Mitigation platform last year so servicers could more quickly support borrowers impacted by COVID-19. One of these enhancements included the capability to extend and adjust forbearances in bulk.

Loss Mitigation supports the myriad of government and private sector COVID-19-related programs and policies, and is flexible to support any new mortgage-relief programs that are enacted. The solution also includes settings for users to control the duration of forbearance plans and eligibility rules.

To help servicers address the many challenges they faced in 2020, Black Knight offered its Loss Mitigation solution with an expedited implementation time, so servicers could begin using it within just a matter of weeks.

Clear Customer Communications

Black Knight also provides innovative solutions that help clients enhance their customer communications, which has been particularly critical during the pandemic. Servicing Digital℠, for example, is Black Knight’s industry-leading mobile app that provides borrowers with a variety of self-service features. One of its many exciting capabilities is that it enables borrowers to request forbearance extensions directly within the app, helping reduce the volume of inquiries into a servicer’s call center.

Clients are also able to add free-form content in several sections of Servicing Digital, including the login page, so they can provide specific, visible COVID-19 messaging to customers.

Black Knight’s new Customer Service℠ solution enables customer service representatives to provide significantly faster response times. Both the Servicing Digital application and Customer Service solution are tightly integrated with MSP and go a long way in helping clients more quickly and effectively handle the ongoing volume of customer inquiries.

Helping Servicers Now and in the Future

Throughout the COVID-19 crisis, Black Knight has closely collaborated with our clients in order to deploy the specific technology enhancements they need in a timely manner. We also have been working with industry trade associations and monitored all COVID-19-related guidance to provide our servicing clients with the ongoing support they’ve come to expect from Black Knight.

Our priority is to help mortgage servicers successfully navigate the business challenges of today – and the future. As a mortgage industry leader with decades of proven experience, Black Knight is uniquely positioned to provide the innovative, integrated technology solutions needed to deal with any issues arising from the impact of COVID-19 and to support servicers and lenders beyond the pandemic. 

 

 

Deborah Martin-Dominick, RCMS

Professional Services Business Consultant; Servicing Technologies

3y

Great article with valuable information!

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