Is the Mortgage Industry Equipped to Implement Washington’s Forbearance Plan?
U.S. homeowners criticized by the COVID-19 pandemic were flooding the phone lines of their mortgage agents even before details of a congressional relief deal were finalized.
The deluge of investigations reflects the scale of the misery caused this month by the shutdown in many sectors of the economy. In the week ending March 21, jobless claims swelled to 3.28 million, more than four times the previous weekly record.
The increased volume of mortgage calls also raises questions about important details of the forbearance plan, which was passed by the Senate and House last week and enacted by President Trump.
Under bipartite law, homeowners who have suffered economic hardship as a result of the pandemic will have to request a temporary halt in payments. An alternative bill from the House Democrats, which is now dead, would have required duty officers to automatically grant forbearances to borrowers who become at least 60 days past due during the COVID-19 emergency.
The requirement that borrowers take proactive steps to seek relief could result in fewer forbearance plans and put additional pressure on overloaded call centers.
“We are quite concerned that a large number of homeowners are facing difficulties and being unable to reach their mortgage agents,” said Alys Cohen, an attorney at the National Consumer Law Center. “So far there is no backup plan.”
And it’s not just consumer advocates who are concerned about the mortgage industry’s ability to handle the high volume of calls.
Ed Delgado, head of a commercial group for mortgage services, said the industry currently lacks the operational bandwidth it needs at this time. “I think the capacity pressure that will be felt across the industry is real,” said Delgado, CEO of Five Star Global.
He added that maintenance departments need to mobilize more staff to process borrower relief requests. This task will probably be complicated by efforts to slow the spread of the virus – either by keeping call center workers at least six feet from each other or by asking them to work remotely.
Mr. Cooper, a Texas-based mortgage company, said on its website that it has allowed almost all of its employees to work from home.
“Our phone lines are extremely busy right now, but over the next week we will be increasing our call center capacity by 30%,” the company said.
PHH Mortgage, a subsidiary of Ocwen Financial, also reports an “extremely high” call volume. On his website, he urges customers who want to start the support process to send an email, but he warns that turnaround times can reach up to a week.
The legislative forbearance plan is part of a $ 2 trillion response to the pandemic, which also includes a 60-day moratorium on most foreclosures. To qualify for forbearance, borrowers must have loans guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration, or another federal agency.
Certain provisions of the plan should facilitate its implementation at a time when telephone lines are congested. For example, borrowers will only have to verbally certify that they are experiencing economic hardship, rather than providing written evidence. Paperwork requirements were a major obstacle to obtaining mortgage relief during the last financial crisis.
In addition, consumers will not be required to frequently renew their abstentions; this should help reduce congestion in call centers. The law states that borrowers can request abstentions of up to 180 days, which can be extended for up to another 180 days.
The requirement that affected borrowers apply for forbearance – rather than being automatically granted relief – mimics the approach favored by housing industry groups.
In a letter Monday to the White House and various federal agencies, seven business associations called for a unified message from the public and private sectors: Homeowners who can afford to pay their mortgage should continue to do so.
Business groups, which include the American Bankers Association and the Housing Policy Council, noted that the number of service workers who are able to answer phone calls has declined due to the pandemic, and said only borrowers who are in immediate need of help should seek help.
“You’re still going to owe money,” said Ed DeMarco, president of the Housing Policy Council, in an interview. “But you’ll just have to do it a lot later.”
DeMarco acknowledged that call volumes will be high and said he wants mortgage agents to outfit their websites to accept incoming forbearance requests.
The Emergency Relief Act does not include the requirement – favored by consumer advocates and included in the House Democrats’ bill – that mortgage agents contact their clients to inform them of the option of ‘abstention.
DeMarco said mass mailings will create additional challenges at a time when many employees are working from home. “Anything that would involve extra expense and time is really not helpful,” he said.
Until this month, mortgage companies had little reason to invest heavily in their maintenance services, which tend to run smoothly in good economic times but struggle during downturns.
Only 1.07% of mortgages were at least 90 days past due in the fourth quarter of last year, more than eight times lower than the 2010 peak, according to data from the Federal Reserve Bank of New York.
In addition, mortgage origination volumes have skyrocketed, thanks to low interest rates, prompting mortgage companies to add employees to this side of the business.
In the current crisis, staff shortages in mortgage management operations could worsen the situation of affected borrowers.
Service agents should make forbearance offers to borrowers who are at least 30 days past due, rather than applying to those homeowners, suggested Patricia McCoy, a professor of law at Boston College.
Borrower outcomes have always been better when service providers work with clients who are only a month late, rather than waiting for their financial problems to snowball, McCoy said.
Emergency legislation passed last week is silent on what will happen to borrowers at the end of forbearance periods.
Fannie Mae and Freddie Mac said earlier this month that homeowners who have not returned to their feet may be eligible for loan modifications, whereby their monthly payments will be reduced. Industry groups are supporting similar programs for cash strapped borrowers with government guaranteed loans of all kinds.
But consumer advocates wanted to see more detail in the legislation.
“There are people who just won’t be able to make these payments,” said Lisa Sitkin, senior counsel at the National Housing Law Project. “It would have made sense to put in place some guardrails or a road map or something like that.”