Much like the mortgage crisis of 2008, the tail of this pandemic won’t look like a short-term disaster. The shadow and timeline for addressing COVID-19 related hardships will be measured in years, not months, especially with the FHFA’s current approach to offer short-term relief options and deferral of forborne payments.
Determine affordability and encourage payment behavior now
The solution offers some relief to servicers planning large staffing campaigns to address expected post-forbearance volume, but it does not address long-term affordability.
A better approach is to deploy technology to evaluate and offer affordable payments, encourage continued payment behavior during the hardship, and gradually step the borrower up to scheduled payments.
Kicking the can down the road with regard to addressing affordability and resuming normal payments doesn’t solve the problem – it actually makes it last longer.
Eight years after the start of the Great Recession, we were still attending foreclosure mediations, processing loan modifications and evaluating short sales. The offramps for recovering from a financial crisis are complex and take time.
Post-forbearance efforts will be complex and time consuming
Millions of Americans signed up for the six-month forbearance solution, without visibility on how this open-ended offer would impact their ability to keep their home. So what’s next?
Mortgage servicers are required to reach out to 4+ million Americans to get an update on their financial situation 30 days prior to the expiration of forbearance agreements. They are going to call – or worse, send letters – asking millions of people to call them back – and talk about what, exactly?
- What kind of documentation will owners of shuttered small businesses be asked for in order to determine what they can pay over the next 30 years?
- For the person on unemployment, waiting for businesses to reopen and resume hiring, what options will they be given if unemployment isn’t enough to sustain their payment?
These aren’t scenarios. These are very real stories and personal situations. Many servicers are flying blind and waiting for investors and regulators to direct them on what they are allowed to do.
The massive influx of dynamic hardships is literally just around the corner. We don’t have months to figure out next steps or how to execute.
Staffing campaigns are not the answer
Hiring hundreds of new employees to answer the phones may feel like the right approach because it’s the way we know. This specific disaster has created unprecedented volumes and complexity, and we can’t even scratch the surface with legacy solutions. Much like the Great Recession, borrowers will once again be frustrated by the long wait times and defeated by the lack of answers when the line connects.
Many servicers and collection teams are not blinking at the cost of massive hiring campaigns for phone channel support but shudder at the idea of investing in automation that could help distressed customers self-serve and their overburdened employees work on high value tasks.
Now is the time for real change.
Technology can make a difference
Banks and servicers are excellent at critical aspects of financial services, and technology companies are great at eliminating complexity and manual processes while scaling solutions through automation and artificial intelligence. Collaboration of financial institutions and technology partners can overhaul the way we respond to financial pressure and crises.
At Constant, we leveraged years of experience in banking, hardship resolution, manual processes and technology to automate these complex decisions and workflows and offer simple, self-serve solutions.
Through lessons learned, we focused solely on the details and configurations that enable precise dissection of financial hardship that result in a responsible and appropriate solution to cure. Our goal was to shorten decision times from days to minutes, build alternative ways to learn about a borrower’s real-time financial situation and reduce the burden of what to request from a borrower.
This is the time to challenge the naysayers. It’s not too expensive. It will save you money. And It can be done quickly.
