What Challenges Are Mortgage Servicers Facing?

The COVID-19 pandemic introduced one of the most stressful times for mortgage servicers and it's not over. According to a recent Insights Report From STRATMOR Group, there are still a number of challenges that are keeping mortgage servicers up at night.

"It wasn’t until the end of the year, or in the first quarter of 2021, that a few companies learned it might have been cheaper and easier to pay someone to take the loans when they were originated, especially in the instances where elevated levels of delinquencies or forbearance occurred," said STRATMOR principal, Seth Sprague.

He added that companies must understand the quality of loans going into their servicing portfolios before opting to retain the servicing.

"Loading up a servicing portfolio with loans having FICO scores of 620 and below, 97% LTV, or FHA servicing that may be 10-15% in forbearance by the end of the year may not turn out to be a successful long-term strategy," said Sprague in his article, "What's Keeping Mortgage Servicers Awake At Night."‍

Additionally, Sprague revealed that servicing costs have increased and will likely remain that way until forbearances are worked out. He also says that while servicers are able to extend the forbearance period beyond 12 months, it can be challenging to reach a borrower. If they can't reach the borrower and verify a hardship, the loan will exit forbearance.

As Sprague outlines a number of issues that servicers face, he does note that it's not entirely bad for servicers. He adds that while the housing market is heating up again, home equity is on the rise and borrowers have the ability to sell their homes to clear debt, should they chose to do so.‍

Click here to read more from Sprague's Insights Report.