During the Great Recession, the ownership of mortgages and mortgage servicing rights became a problematic issue, due to the common practice of loan originators repackaging and selling loans to servicing firms who, in turn, often sold them again. The ownership of mortgage servicing rights is even more important today, with 4.76 million homeowners in active forbearance as of the end of May, according to Black Knight‘s Mortgage Monitor Report.
The shift from pipeline growth to pipeline management presents its own set of challenges for servicers and investors. As of May, 80% of homeowners in forbearance had at least 20% equity in their homes, making them candidates for refinancing, particularly with falling mortgage interest rates of about 3% in June.
Documentation Demands on Both Sides
Servicers need to notify borrowers of any forbearance or modification offers made or accepted, subsequent communications and final resolutions. Homeowners seeking to refinance will need all forbearance and other mortgage-related documentation, including all details on mortgage ownership, mortgage servicing rights, forbearance notices and offers and any loan modifications.
Another complication is that servicers could see an additional jump in pipeline growth:
- Though the number of homeowners seeking forbearance and loan modifications has declined, it could go up again once the federal government’s $600 enhanced unemployment benefits end July 31. (There is some talk of an extension, but much of Congress opposes additional unemployment, even if there is another stimulus package.)
- New mortgage applications will likely remain strong as long as rates stay low. According to a CNBC report, mortgage applications in early June were 18% higher than a year earlier, based on the Mortgage Bankers Association’s seasonally adjusted index.
Information Management Challenges
Servicers would be hard-pressed to handle the surge in volume with legacy, paper-based systems, which are too slow and cumbersome for an efficient operation even under normal circumstances. Now that the COVID-19 pandemic has servicers working remotely with employees who have transitioned to home offices, paper documents are impossible to access.
Properly recording, filing, storing and retrieving electronic documents has always been a challenge. If not properly managed, it’s easy to misplace — or worse, not file or accidentally delete — important documents. In a remote environment, servicing staff is working without the filing system or robust security precautions that they would normally have in the corporate office.
Meeting the Challenges
While the volume spike and resulting document management issues present complications for servicers, they can meet those challenges by working with an experienced partner with deep expertise in secure storage and retrieval solutions, so that any documentation regarding loan ownership and servicing can be recalled on demand.