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Mortgage Industry Considers the Future of Loss Mitigation

Client Partners Mortgage Industry Considers the Future of Loss Mitigation

Mortgage Industry Considers the Future of Loss Mitigation
By Adam Saab, Vice President, Default Management

The pandemic has taught the mortgage industry a lot of lessons, among them what’s possible when we’re given the right tools to help homeowners avoid default.

At the onset of the COVID-19 pandemic, it’s estimated that 8.5 million homeowners hit the pause button on their mortgage payment by requesting loan forbearances. Forbearance — not common before the pandemic — has proven to be a good tool to help homeowners during a hardship. It has allowed homeowners to take a breath, a step back and assess their situation.

If someone was in financial distress, all that a person needed to do was raise a hand and ask their mortgage servicer for help. Requesting pandemic-related forbearance had no negative impact on homeowners. Credit scores were not affected, late fees were not assessed and no loan would be referred to foreclosure. It was a safeguard for homeowners and a relatively seamless process if the homeowner worked directly with their mortgage servicer.

As a servicer, we at Cenlar know it’s particularly vital to be a source of strength in those moments that are a homeowner’s most uncertain times. Whether it’s a pandemic, a recession, a natural disaster or even someone who has had a life-changing event like a divorce or job loss, these are all difficult moments in a person’s life and completely valid reasons someone may need to request forbearance. Keeping the homeowner in their home is always at the forefront, and we welcome any tools to help us achieve that goal.

Many homeowners who have entered forbearance early in the pandemic are starting to exhaust their time and look to go into post-forbearance workouts. The national emergency that created the pandemic forbearance program is scheduled to expire May 11, 2023 — ending all COVID forbearance options with it.

Meanwhile, we’re staring at the possibility of an economic recession that could hinder some homeowners from being able to afford their mortgages. The increase in cost of living, with inflation staying hot over the last few years, already has put a dent in how far homeowners’ dollars go.

But pandemic workouts have shown what is possible. Servicers, lenders, agencies like Freddie Mac, Fannie Mae and the Federal Housing Authority (FHA), as well as industry trade groups, are currently working collaboratively to discuss how we might equip ourselves with a proven tool by implementing these pandemic-related workout solutions permanently. We want homeowners to use all the options available to them whatever their circumstances are for pausing their mortgage. It’s vital that no homeowner has to rush into a solution or worry about losing their home.

When the pandemic hit, we didn’t have all of the streamlined workout offerings that we do now. While the CARES Act initially permitted six months of forbearance and then another six months if homeowners requested it, the agencies rolled out programs that complemented this forbearance, and allowed homeowners additional options. And, because some homeowners were impacted by the pandemic for longer periods of time, forbearances kept people in their homes. It’s possible that a lot of people would have lost their homes if they weren’t able to simply ask for help.

I’m certain we’ll see forbearance evolve in the future. The will exists, with the industry backing a continuation of the workout solutions that were available during the pandemic. We want to be flexible with their workout options.

Ultimately, homeowners should know that we are here to help them through turbulent times. The best-case scenario for us all — the homeowner, the community, the economy and the servicer — is to keep people in their homes.

Adam Saab, as Cenlar’s Vice President of Default Management and head of Early-Stage Default, oversees all the early phases of the default process, including Single Point of Contact and loss mitigation. He has more than 20 years of experience working in both servicing and subservicing for servicers and large banks.

Adam Saab         
Vice President, Head of Early Stage Default