Mortgage Servicing at the Tipping Point: A New Model for an Uncertain Future
Byline: Nadim Homsany, CEO, EarnUp
The loan servicing industry is reaching a tipping point. The timeline for economic recovery from COVID-19 is uncertain and it’s difficult to forecast and manage risk. Meanwhile, operational demands on servicers, particularly those in the mortgage industry, are increasing exponentially. Servicers that take a proactive, data-backed approach to supporting consumers will be best positioned to navigate the uncertainty.
You may have sources for data on property values, but only limited insight into consumers’ financial health today, such as their recent employment status & latest income, assets, and debt obligations. What data you do have was probably collected at the time a loan was initiated. In this volatile economy, it’s most likely out of date.
Why do servicers need to make a change now? Servicers tell us they’re bracing for a coming tidal wave of loans exiting forbearance. It’s hard to know which path customers will take at the end of the forbearance period. Will they be able to get payments back on track? Extend forbearance? Or, need other workout solutions?
At the same time, consumers continue to struggle with unemployment and staying on top of their expenses. They have limited funds and need to figure out which bill to pay first. With 35% of Americans missing or skipping a mortgage payment due to the pandemic, there’s a good chance your bill will be the one they skip.
Servicers need new ways to effectively and efficiently identify at-risk loans and intervention opportunities NOW or costs will rise and risk will increase.
The good news is that servicers are in a unique position to influence economic recovery and help homeowners maintain financial stability. When armed with actionable insights and effective tools, forward-thinking servicers have the power to:
Increase the likelihood that homeowners will repay their mortgages on time.
Improve customer satisfaction by demonstrating to consumers that their needs can be supported.
Satisfy investors by reducing risk and costs.
Increase efficiency so servicers can grow their portfolio and profitability.
Those servicers that navigate successfully through this uncertain time will have a tremendous opportunity to gain a competitive advantage. They will retain revenue and be better positioned to take on more loans and grow revenue.
The servicer reality: caught between a rock and a hard place
Servicers are the bridge between consumers and investors. But trying to please both sides means operating with slim margins and limited liquidity, especially for non-bank servicers that don’t have an origination arm.
Even if homeowners miss mortgage payments, servicers are still obligated to advance payments on these loans to investors (plus taxes, insurance, GSE guarantee fees, FHA premium, and Ginnie Mae fees). Advancing payments limits cash flow and makes it harder to borrow.
If you’re one of the many servicers new to the market since the 2007-09 financial crisis, this may be the first time you’ve had to increase capacity this quickly without becoming overwhelmed.
The traditional, manual, servicing model simply can’t scale to meet expected demand. Any servicing burdens that increase your operational costs are going to be painful.
Many mortgage servicers are operating in the dark
Managing risk is difficult when you don’t know which consumers are most likely to struggle.
Since the start of the financial crisis caused by the pandemic, servicing costs have increased dramatically. The cost to service a performing loan has increased two to three times and the cost to service a non-performing mortgage has increased by four to five times. FHA loans are three times more expensive to service than GSE loans.
Sure, you can add agents to your call center and increase manual outreach. But watch those operational costs start to spiral.
To reduce risk and increase loan performance, servicers need a change in mindset and a new toolset.
Data helps you work smarter, not harder
Servicers that can engage with borrowers in a more proactive, transparent, and efficient way have a better chance to get them back on track with best-fit options for repayment.
Accurate data on consumers’ current financial health is critical to providing support before it’s too late. You need to know who has lost their job, whose income has decreased, the status of unemployment benefits, and other changes in financial situations that increase the likelihood of missing payments.
When you have the right data at the right time, you can take proactive action to address three types of scenarios:
Non-performing loans exiting forbearance. Servicers can help homeowners have a soft landing when exiting forbearance by offering a range of workout solutions.
Potentially non-performing loans. Servicers can prevent homeowners from defaulting on loans by offering proactive solutions such as forbearance.
Performing loans. For homeowners that are making payments, servicers can increase satisfaction in a competitive market with little brand loyalty. By offering customers innovative, flexible payment options, you can increase the retention/recapture rate for low-risk customers.
How EarnUp partners with servicers
We believe the best way to help consumers repay their loans is by strengthening the relationship they have with their primary point of contact for payment — their loan servicer.
EarnUp has a proven history helping consumers make their mortgage payments on time, every time. Launched in 2013, we manage more than $10 billion of loan repayments on the EarnUp platform. By improving communication with consumers and enabling flexible payment scheduling, EarnUp has helped customers become better borrowers. 35% of EarnUp customers are paying off their debt faster, and 26% of customers are saving money on interest. Furthermore, nearly 80% of consumers using EarnUp improve their overall financial health. For example, customers with annual incomes under $60,000, have improved their credit scores by 50%.
Building on our success working with consumers to facilitate automated loan repayment, we’ve added a component of our payments platform to offer borrower-level insights to enterprise lending institutions. Via EarnUp’s GetAhead Dashboard, servicers can access accurate, up-to-date data to evaluate the financial health of your borrowers so you can focus your efforts where support is needed most.
GetAhead Dashboard equips servicers with the tools to:
Improve loan performance by providing real-time data and a 360° view into borrowers' portfolio: income & assets, debt obligations, credit score, employment, and financial trends;
Increase revenue through enhanced recapture with EarnUp predictive insights on high-value leads;
Minimize risk through enhanced servicing, forward-looking metrics, and early alerts and indicators; and
Increase profitability and minimize cost through a more efficient workforce, digitized data collection and communications, better loan management, and fewer customer complaints.
Frequent, timely communication with customers through the EarnUp GetAhead payments portal improves transparency, customer satisfaction, and likelihood of repayment, without increasing your servicing costs. Flexible payment models, such as syncing debits with paydays, help consumers budget and ensure payments are made on time.
We’re here to help our servicer partners ensure more consumers successfully repay their loans and stay in their homes. To learn more about how EarnUp can help servicers and get a personalized demo of our solution, please get in touch.