Loss Mitigation and the End of Forbearance
An Interview with Bob Hora
Senior Vice President, Default Operations
The March 2021 issue of Black Knight’s Mortgage Monitor reported significant reduction in national mortgage delinquencies, with substantial improvement among homeowners who entered forbearance early in the pandemic. These findings are largely consistent with our data in which the number of homeowners in forbearance reached a peak of 155,000 in June 2020 and steadily fallen to less than half that amount (73,000) by April 2021.
Despite these reductions, clients are concerned about what will happen once forbearance ends and how Cenlar is preparing for the aftermath. We recently posed these and other related questions to Bob Hora, Senior Vice President for Default Operations. An excerpt from that conversation follows.
Centinel: What are the biggest concerns clients have regarding the end of forbearance?
Bob: First and foremost they want to know whether homeowners in forbearance can reach us and we can reach them. We’ve made ourselves more available by increasing our reliance on our mobile app, setting up a forbearance bot, and increasing our use of email and text. We reach out to homeowners in forbearance every month rather than every 90 days, which is the industry standard.
Clients also want to know whether we are making quality right party contact (QRPC). In the final month of forbearance, we reach out at least four times until we can ascertain exactly what the homeowner wants and needs in order to be able to start performing again.
Centinel: What if we are not able to achieve QRPC?
Bob: We generally follow the standard GSE waterfall, although HUD is a little less prescriptive. If we are unable to contact the homeowner, we will send a deferral solicitation. If there is no response, we send a solicitation for a flex-disaster modification. If we still have radio silence, the next step is to start default proceedings.
About 28% of all of our loans in forbearance are held by private investors, such as credit unions and regional banks. They don’t have to follow the Cares Act or guidelines, and can dictate the types of workouts we can offer. Trying to repay $36,000 in debt in three years can have a big impact on your monthly payments, so ideally we want to avoid creating too burdensome a workout plan.
Centinel: How many homeowners have we helped so far?
Bob: From March 2020 to April 2021, we’ve spoken directly with about 153,000 homeowners regarding forbearance. About 100,000 initially chose forbearance and then found they were able to cancel it. We’ve been successful in arranging workouts with the other 53,000.
Centinel: There is a general assumption that forbearance will end on June 30, to be followed by a massive wave of exits. Is that a misreading of the situation?
Bob: Yes. The Cares Act moratoriums were extended to June 30, but it’s not a hard stop. The GSEs are looking toward the end of June, while others are looking toward the end of September. We believe most counterparties will extend to at least September 30. The CFPB has proposed extending to year-end and then providing a mandatory 120-day review to ensure each homeowner received an appropriate workout opportunity.
Centinel: So the confusion over when forbearance will end is based on the different calendar deadlines?
Bob: That’s part of it. The other part is that the Cares Act allows for a maximum 18 months of forbearance and 15 months of delinquency. It’s possible some homeowners were on forbearance before, dropped out, and went back on it again. We have about 3% to 5% of homeowners in this situation. We also have people making their first requests for forbearance. We’re getting about 5,000 of these new requests a month. It’s possible we could be getting these first-time requests up until June 30, and the homeowner would still have 18 months to stay in forbearance.
We have about 70,000 people today in active forbearance, and it’s been coming down. We anticipate by January 2022 we’ll be down to about 13,000. Our forecast indicates thousands of homeowners will still be in forbearance through mid-2022. As a subservicer, we persistently revisit this outlook so that we can staff appropriately and otherwise be ready to manage the volume of folks who come off forbearance and be prepared for any issues that arise.
Centinel: What kind of problems can arise outside of doing the workout?
Bob: Many of these loans, for example, have been pooled into securities and sold in the secondary market. That prevents us from offering certain workouts or modifications, such as extending the term of a loan beyond the maturity date of the security. To do a Ginnie Mae workout, you have to buy these loans out of the pool. This doesn’t come up for most of our loans, but when it does it creates litigation issues that are not easily resolved.
Centinel: Are you adapting new technologies as part of the overall loss mitigation effort?
Bob: Yes. We are putting more automation in place, which will allow us to be more seamless in our investor communications. We recently worked with Freddie Mac to implement a new API that will eliminate a lot of manual input and shorten our timelines, so homeowners will get help faster. It will be great for clients, too. They’ve been advancing a lot of money for homeowners in forbearance. The faster we can do a workout, the faster it will be reported to the GSEs. That means clients will be reimbursed faster for their advances as well. We also just implemented Freddie Mac’s PAIE claims-reporting application. It will also allow us to report the claim to the investor faster. We plan also to move from Fannie Mae’s old HFSN system to their new FDMU system in the fall.
Centinel: At times like these, subservicers tend to find themselves suddenly standing in a very bright and glaring spotlight. Is there anything that’s getting lost in this process that everyone, including the general public, should keep in mind?
Bob: Yes. Our goal is the same as the goal of our clients, the regulators, the investors, and the folks on social media. We want to help every homeowner we can, so that families can stay in their homes and avoid foreclosure. That is the best outcome for us, for homeowners, for clients, for real estate values, for communities and for our society as a whole.