Recently, Selene Finance’s Chief Revenue Officer John Vella joined other mortgage and servicing executives for the webinar “Restarting the Servicing Engine: Loss Mitigation After the Pandemic.” Part of the Five Star Institute webinar series, the event covered operational challenges in loss mitigation, maintaining a servicing operation in a fluid industry and efficiently managing loss mitigation in a post-pandemic world. 

The webinar opened with the host discussing a letter from New York Attorney General Letitia James on Dec. 13, 2021. The letter, which was also sent to mortgage industry trade associations, reminded mortgage servicers operating in New York of their obligation to help homeowners impacted by the pandemic. The letter noted servicers have had sufficient time to plan for homeowners exiting forbearance and the termination of foreclosure moratoriums and that there is no excuse for any lack of preparedness. Attorney General James warned that a servicer’s lack of diligence will be considered in enforcement decisions.

Officials in other states sent out similar letters. Those letters became the focal point of the panelists’ discussion. While some felt the edicts laid out in the letter are “unrealistic” and explained why, panelists also provided advice on what servicers can do going forward to continue helping customers as the industry transitions into the post-pandemic environment. 

Vella discussed how current market conditions, including inflation and the Fed possibly raising rates, may impact servicers’ ability to help homeowners who participated in forbearance programs. He described the challenge of continuing to manage and train a huge staff now working from home, which some companies are still trying to implement. Additionally, they have had to service the homeowners who have fallen out of habit of paying a mortgage. 

Vella pointed out that homeowners are also facing inflation and rising costs while their cash flow has been reduced in many cases. In the past, homeowners could refinance to help them cope with mortgage payments, but increased rates make that more difficult. Together, these factors add a lot of uncertainty that homeowners and servicers can’t really plan for. He added that companies need to be very nimble. Servicers must have the processes and people in place to react to any market situation, though he admitted that’s very difficult. 

When asked about what sub-servicers can do when faced with agency rules being applied to non-agency loans, Vella advised that servicers should address this situation investor by investor. There’s a lot of nuance involved. Discuss next steps in detail with homeowners, document everything and put it on record in case loans do go into foreclosure. He emphasized that sub-servicers need to anticipate and be ready for both good and bad scenarios with every loan.

Finally, Vella pointed out that technology and automation are more important than ever — not only for customer-facing service platforms but also staff training and operations. These tools are a must-have for maintaining efficiency and accuracy, especially at a time when lacking efficiency and accuracy could lead to scrutiny from regulators. 

The other panelists shared their concerns, including the difficulty for servicers to “be prepared” when faced with ambiguity created by new and frequently shifting regulatory policies and expectations. Some noted tension between veteran regulators at the staff level and newer senior administration executives. Veteran regulators tend to understand how processes and regulations should work based on years of experience. Newer, less seasoned administrative executives without this experience may make decisions swayed by various pressures, including the community, politics and even their own inexperience. 

Panelists also expressed concern about the perception that servicers have had sufficient time to prepare for the post-pandemic environment. While it has been two years since the pandemic emerged in March 2020, there was significant uncertainty throughout the pandemic. Servicers, regulators and legislatures alike were faced with an unprecedented crisis where existing regulatory constructs were not well-suited to address the needs of homeowners during the pandemic. Servicers and organizations were required to be nimble and address homeowner concerns in the absence of clear regulatory guidance. 

When regulatory guidance was issued, servicers were required to immediately navigate complex local, state and federal guidance and implement all the regulations in a very short period. During this time, it was not uncommon for regulatory expectations or guidance to change or be updated, which added additional challenges for servicers. Servicers were in a constant state of change updating programming, systems and training staff with each regulatory update. 

Servicers should avoid being an outlier and keep abreast of supervisory and enforcement actions taken by regulators. This is especially true for how servicers handle homeowners exiting forbearance and loss mitigation procedures. Servicers must ensure they are following both the black letter regulations as well as industry best practices so that they are as prepared as possible for the post-pandemic realities. 

To see the full webinar, click here.