Compared to today’s mortgage origination market, which is currently being slammed by higher interest rates, mortgage servicing remains a highly profitable business. Even better is the fact that mortgage delinquencies, which can eat into those profits, are at historic lows.
Yet the market is nothing if not cyclical in nature, and chances are high that defaults will rise at some point in the future. Inevitably, that means servicing costs will go up, too. And if you don’t have the right tools and resources in place, the impact could be painful.
During the COVID-19 pandemic, when millions of Americans were losing their jobs—some temporarily, others permanently—it was believed that mortgage defaults would soon soar. Thankfully, due largely to the CARES Act and other pandemic-related assistance, this didn’t come to pass. In fact, during the second quarter of 2022, delinquencies fell to just 3.64% of outstanding loans, according to the Mortgage Bankers Association’s National Delinquency Survey—a drop of 183 basis points from one year earlier.
With foreclosure protections ending and inflation picking up steam, however, many believe this picture could soon change.
According to an August report from the New York Fed’s Center for Microeconomic Data, total household debt grew by $312 billion during the second quarter and is now more than $2 trillion higher than the fourth quarter of 2019. The reason? Too many Americans have been leaning on credit cards and other forms of debt to survive the pandemic and rising inflation.
Recently, Auction.com surveyed mortgage servicers selling distressed assets on its platform and found 90% expected an increase in their foreclosure auction volumes over the next year. While still near historic lows, foreclosure filings during the first half of the year were already up 153% over the same period last year, according to ATTOM’s Midyear 2022 U.S. Foreclosure Market Report.
We only have to look back 15 years to see what impact rising defaults can have on servicing operations. During the Great Recession, soaring delinquencies caused servicers to lose track of payments and pressured them into taking shortcuts to save money. It’s worth noting that the Consumer Financial Protection Bureau has already placed servicers on notice that they are examining how well they help borrowers coming off forbearance plans.
So, if there was ever a time to plan ahead, it’s now.
How much impact an increase in defaults will have on a servicer’s business will largely be dictated by their servicing platform and its capabilities and limitations. Most legacy servicing technology, for example, can’t be customized to fit a servicer’s business. Worse, their customer support is often highly lacking when issues arise.
The good news? Most servicers are doing well enough to devote some time toward rethinking their platform of choice and ensuring they have proven, scalable, customizable technology that helps to save on costs and improve productivity in all market conditions.
When considering options, the wise move is to prioritize software that has been battle tested during some of the most disruptive market cycles. It’s also a good idea to consider software that is built on cloud infrastructure, which allows new features and functionalities to be implemented as quickly as they can be created.
MCC Mortgage Solutions’ software, for example, is built on cloud technology and comes equipped with a highly configurable default management module that streamlines all default processes, including collections, short sales, payoffs and foreclosures. It includes IVR, power dialers and borrower-facing tools to ensure servicers stay in close and consistent contact with distressed borrowers. And it makes investor and compliance reporting simple and easy.
Best of all, our software is backed by a highly proactive customer support team, so that when you have a question or need something fixed, you’ll get help immediately.
To learn more about how MCC Mortgage Solutions can help you prepare for the next wave of defaults—whenever it hits—just reach out to our team at 248-350-9290 or email us at email@example.com.