The Covid-19 pandemic has made a considerable impact on the mortgage industry. In a relatively short time, mortgage delinquencies have risen significantly, which might be surprising considering the economic stimulus packages the government provided.
However, the soaring jump in the mortgage delinquency rate is due to a decent portion of mortgages, nearly 30% provided by lenders, not meeting the requirements of the Coronavirus Aid, Relief, and Economic Security (CARES) act.
Unfortunately, many borrowers were not aware that this act only applied to mortgages backed by the government. This caused a steep jump in mortgage delinquencies. In the second quarter of 2020, the mortgage delinquency rate jumped to 8.22%.
Borrowers with FHA loans, often first-time homebuyers, faced the worst rates of mortgage delinquency. According to the National Delinquency Survey, 15.6% of borrowers with FHA loans had payments that were past due. This is almost double the rate for all other types of loans.
These first-time homebuyers were just adjusting to having a mortgage and making payments when the pandemic hit. This made it extremely difficult for these individuals to submit their payments on time, as they navigated huge life changes during a time of crisis.
As a result, mortgage lenders were put in a difficult position dealing with mortgage delinquencies during the Covid-19 pandemic. Lenders need to come up with new, innovative ways to reduce the risk of delinquencies and minimize loss.
How Mortgage Auto Payments Work & Why You Should Embrace Them
Mortgage auto payments are a great resource that mortgage lenders and borrowers should take advantage of. The jump in mortgage delinquency rate caused by the pandemic encouraged mortgage lenders to embrace automatic payments.
Setting up mortgage auto payments is easy and simple for both the lender and borrower. The borrower simply must set a date and amount to pay their mortgage lender using either a checking account or credit card.
The lender will need to use a platform that allows automatic payments. Embracing mortgage auto payments is crucial for mortgage lenders. With automatic payments, you reduce the risk of default or delayed payments, and you don't have to deal with charging late fees quite as often.
Outsourcing provides an easy way for lenders to embrace automatic payments. A Mortgage BPO (business process outsourcing) company can set up an automatic payment system so that you can worry less about defaults and delinquencies.
What Is Customer Segmentation Remodeling & How Can It Help Lenders?
Before the pandemic, lenders used scorecard-based models to classify borrowers, especially high-risk ones, which did not factor an individual's geography sector into their income. In the face of Covid-19, this model was no longer valid, which prompted lenders to remodel customer segmentation.
For example, at the height of the pandemic, states that depended heavily on tourism and hospitality for jobs were the states that faced some of the highest rates of mortgage delinquency. States like New York, Florida, Nevada, New Jersey, and Hawaii that saw a sharp decline in employment prospects also saw an increase in mortgage delinquency rates.
Customer segmentation remodeling lets lenders take these factors into account during times of crises for a more comprehensive look at borrowers. This helps lenders better handle risk optimization. Lenders should leverage more advanced analytical modeling for customer segmentation and consider all possible segmentations to suggest the best policies to borrowers.
How Debt Relaxing Can Help Lenders Make Good Decisions
Debt relaxing also emerged during the Covid-19 pandemic to help handle delinquency management and default management. Lenders should take into consideration the following factors for mutually beneficial debt relaxing measures:
- Retain Loan Affordability – Retaining loan affordability includes waiving fees and reducing interest for a customer's due payment. With lower fees and interest, the lender reduces the risk of delinquencies.
- Carefully Select Customers Eligible For Credit – Lenders should carefully select customers' eligible credit. Enlisting specialized services for applications, Mortgage Underwriting, and the mortgage default process are a great way to do this.
- Redesign Loan Structure – When it comes to high-risk customers and borrowers, lenders should redesign their loan structure with more guarantees and collaterals to promote accountability and obligation for timely repayment.
- Encourage Timely Payment With Initiatives – Lenders should also engage and communicate with their customers to encourage them to pay on time. Notifications help ensure a customer will not miss a payment.
- Inform Customers About Financial Aids – Good default management also includes the lender informing customers about financial aids. This helps the borrower take advantage of government aid, which can also help the lender avoid mortgage delinquencies.
Investing In Digital Technology
Investing in digital technology presents a lucrative opportunity for the mortgage industry, especially in the face of the Covid-19 pandemic. Digital technology makes it simple for mortgage lenders to handle delinquencies management and default management. Here are some examples of digital technology for the mortgage industry:
- Automated Communication Channels (Calls, Emails, Messaging, Etc.)
- Digital Application Processing
- Online Portals For Online Payments & Automatic Payments
Lenders should invest in digital technology communication channels like automated calls, emails, messaging, notifications, and more. By taking on these digital communication channels, lenders can actively communicate with customers about payments to get in front of mortgage delinquencies before they occur.
Additionally, mortgage lenders can take advantage of digital technology for Mortgage Loan Processing, applications, underwriting, and the mortgage default process as a whole. Outsourcing the mortgage default process allows lenders to efficiently and affordably embrace digital technology.
Historically, the mortgage industry has not embraced digital technology like other industries. The Covid-19 pandemic showed how beneficial and lucrative digital technology is for the mortgage industry. Investing in digital technology allows lenders to get in front of mortgage delinquencies and take a proactive approach to delinquencies management.
Benefits Of Outsourcing Mortgage Default Servicing Process
The mortgage default process can be outsourced to minimize mortgage delinquencies and take an active approach to default management. When you outsource the mortgage default servicing process, you can take advantage of the following benefits:
- Team of expert mortgage professionals at your disposal for default management
- Back-end support provided for all types of mortgage loans
- Loss analysis reports and due diligence for loss recovery
- Detailed documents, record keeping, and storage
- Multi-level document review to ensure accuracy
- Reduced operational costs for lenders (up to 40%)
- Lenders given flexibility on how to utilize resources
- Improved productivity and operational reporting
If you're looking for help with default management, outsourcing the default servicing process is a great way to do so. Outsourcing will help you utilize expertise, gain support, maximize efficiency, reduce costs, and make smart, data-driven decisions.
Going Forward: Dealing With Mortgage Delinquencies During The Covid-19 Pandemic
Dealing with mortgage delinquencies during pandemic times are not easy, but manageable. Lenders can embrace new and innovative approaches to delinquencies management and default management to minimize mortgage delinquencies going forward.
Rely Services is a leading (business process outsourcing) BPO company that specializes in Mortgage BPO. Our mortgage BPO services are strategically designed for our clients to handle default and delinquencies management.
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