Mortgage servicers have their “hands full” with assessing how their mortgage customers will evolve from forbearance to a performing loan or foreclosure (if necessary). Loss mitigation will be a critical element to converting as many of the forbearance loans into new or restructured performing loans. Not all borrowers will be able to meet the payments needed for the minimum mortgage structure and that is where an efficient and timely foreclosure process is critical to achieve a less costly foreclosure. If servicers don’t plan for this forbearance transition – it will be more costly, result in operational issues like those faced during the Mortgage Crisis, emerging regulatory compliance issues and likely financial/cost concerns.
Hopefully most of the current forbearance loans will be restructured/modified or refinance with a new loan on the property. Not all loans in forbearance will be as lucky and those will require much more work to try to avoid foreclosure. Practically, a majority will require significant work by the Servicer to address the following challenging factors:
- the borrower(s) does not have the financial position and cashflow to support the original or any other restructured loan scenario,
- the risk and impact of deferring payments of the principal, interest and escrows that have accumulated during the forbearance period,
- deferring the accumulated unpaid amounts from the forbearance period until the end of the loan or spread such delinquent amounts across the remaining payments may work but also may not fit with the investor’s requirements and/or the risk that results,
- increasing interest rates (which is possible given the Fed’s projection for inflation),
- the originator may have been unable to sell or securitize the loan to an investor before the start of the pandemic and is now trying to meet current investor requirements,
- call centers may have issues in communicating with borrowers that have a forbearance and want to understand if they are capable of “emerging from the forbearance”,
- technology applications are available and should be considered especially if there is a large number of forbearances that need to be assessed,
- servicers that did not comply with the forbearance/investor requirements, exhibit policy or operational deficiencies will impact their success with restructuring/refinancing loans and be able to get approval from the Investor, the Trustee and the borrowers,
- certain loans in forbearance require experienced loss mitigation and foreclosure resources to assess the level of risk, determine the approach and match loss mitigation/foreclosure resources with the borrower’s requirements.
Hilltop’s professionals have worked in many mortgage servicing operations in key senior rolls, as auditor, as a regulatory compliance professional, lawyer and positions in operational and financial areas. Hilltop’s CEO has been KPMG’s Leader of the Financial Services Lending, Servicing and Securitization Practices. Hilltop and/or its professionals have worked with many companies in the mortgage origination, capital markets and servicing:
- Bank of America – OCC assistance,
- Burke & Herbert – strategy and operational assessment, compliance reviews,
- Chase – operational reviews, cost/efficiency assessment, recommendation,
- CitiMortgage – compliance, cost assessment
- Wells Fargo – two senior loss mitigation and foreclosure managers have worked for 25+ years,
- FHA – 5-year contract to review all first stage foreclosure claims made by all servicers,
- First Republic – SBA PPP review of loans being originated under the PPP program,
- OCC (loss mitigation and foreclosure for PNC, BofA and Wells)
- BancSouth – acquisition integration, SBA compliance, mortgage performance,
- BB&T – commercial loan M&A including risk assessment,
- Freddie Mac, Fannie Mae and Ginnie Mae – numerous engagements,
- BankUnited –commercial loan workouts, FDIC commercial loan reviews, compliance,
- B1Bank – SBA 7a loan program review
- Freedom Mortgage – compliance, M&A diligence and integration,
- PHH – underwriting assistance, Ocwen compliance,
- Sandy Spring Bank – servicing review, compliance, PPP support.
- Many other banks and independent mortgage bankers reviewed as noted herein.
Our experienced team will use our deep industry experience (especially our loss mitigation and foreclosure experience) to identify key areas, using our PerforMetrics© methodology, that Management can enhance operations, reduce risks (including but not limited to credit, regulatory compliance, counterparties, litigation, etc.) and identify cost reduction measures to be taken. This effort can be focused on all of the following areas or identify specific/targeted areas:
- assessing all servicing operations (onboarding, customer assistance, escrow management, investor reporting, compliance (regulatory, servicing contracts, purchase/sale agreements, etc.), collections, loss mitigation, foreclosure,
- identifying risk management issues related to each of the operational areas noted above with an emphasis on regulatory compliance,
- identifying what is causes identified operational inefficiencies (policies, procedures, staffing numbers and quality of such, use of technology (current or new apps to be used),
- improving financial metrics which includes not only numbers of employees but employee quality, team mix of experience, utilizing your experienced resources effectively, use of technology/results/investment payback, outsource vendors and meeting operational benchmarks, etc.,
- identifying business requirements that need to be established in order to properly select a new technology application,
- being compliant with the company’s policies, bank regulations, CFPB regulations, contract requirements (especially if your Company sells loans to third parties:
- as a broker,
- as a correspondent,
- as an improved lender for investors or securitizers),
- identifying the loans that will go through forebearance quickly, to those that will be more challenging and if that fails – moving the loan into the CFPB required loss mitigation efforts – this involves assessing/scheduling experienced resources, training staff for the steps needed for each of the “levels of effort” within the loan forebearance/loss mitigation processes,
- helping identify and make changes to the lending, secondary market, securitization components that “feed” loans to be serviced by the Company, and
- quantifying the cost of all compliance efforts including the costs incurred for Forbearance efforts, recovery of servicing advances, MSRs value recovery, compliance, etc.
Hilltop understands the lending, loan servicing, securitization, and regulatory requirement aspects of your business. But knowing where to look for inefficiencies, calculating the cost of such and identifying/making the necessary changes to increase operational performance comes from experience.
We would like to set-up a call to discuss your operations, compliance and costs.
Geoffrey A. Oliver CPA, CFF, CMB
Chief Executive Officer
The Hilltop Companies LLC
gaoliver@thehilltopcompanies.com
O: 703-356-3350
C: 703-801-1921
Don Davis
Managing Director
The Hilltop Companies LLC
ddavis@thehilltopcompanies.com
O: 703-801-1921
C: 240-305-3339
