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Our Forbearance Future
Where were you on September 15, 2008? On that date, Lehman Brothers filed for bankruptcy protection. The results included the worst global recession since the Great Depression and an implosion throughout the mortgage industry.
If you were working for a mortgage company at that time, you might have seen it coming. We had laid the seeds of our own demise with exotic loan products, silly investment vehicles, and imaginative hiring. The resulting shakeout took a lot of good loan production professionals and some lesser dedicated, perhaps unscrupulous, mercenaries (think of some of the LOs we hired) out of their jobs.
What happened to those people who were committed to the mortgage world but abruptly had no loan applications to work? Many of them found refuge by moving into loan servicing. It was an area that became desperate for warm bodies almost overnight. And those people who could spell mortgage with a “t” in the middle were especially valuable. Do you remember that time? Or maybe you’ve heard about it.
With the coming end of forbearance plans, we are very probably headed for a similar situation, albeit not to such an extreme. The MBA’s July projection for loan volume in 2021 is almost $3.6T with a drop of more than $1T for next year (MBA Mortgage Finance Forecast, July 21, 2021). Once again, given our industry’s current capacity for loan production, we’ll be looking at a lot of people scampering to maintain consistent income.
Although it won’t be anywhere as deep as what we survived twelve years ago, we’re also likely to experience another surge in loan servicing. How big? We’re not yet sure. But according to CoreLogic, the 150-day delinquency rate just hit its highest level in two decades.
What are you doing to prepare people to work in your servicing division when you no longer need their loan production talents?
Per the MBA’s Marina Walsh, “Notwithstanding the welcome improvement in mortgage delinquencies and the positive job outlook, the delinquency rate this past quarter (Q1, 2020) still remains 105 basis points higher than its historical quarterly average of 5.33 percent. We continue to see seriously delinquent loans - those loans that are over 90 days past due or in the process of foreclosure - at elevated levels, particularly for FHA and VA borrowers.”
So, if your company services loans, what are you doing to prepare people to work in your servicing division when you no longer need their loan production talents? How will your company retain those folks and maximize their value as loan counselors, customer service agents, modification specialists, and maybe even foreclosure administrators? What can do now to ensure you have, as Jim Collins says in “Good to Great”, the right people on the bus? Some ideas:
- Be honest with your people when you see lay-offs in the foreseeable future. Explain how the inevitable decrease in applications may eventually impact their jobs.
- Tell them you expect to have a need for additional people in your Servicing Division and how you plan to fill those positions.
- Produce short explanations – written, audio, video, or in group gatherings – about the duties of the servicing positions you expect will come open. Invite your existing production staff to use these resources for identifying roles that might appeal to them.
- Start today to identify those individuals who have the capacity and are likely to have the desire to work in the servicing world. One question to ask is, “Does this person have a commitment to our industry and our corporate values? A “yes” answer represents someone who is more likely to stay with you as they struggle through the changes this kind of job change will generate.
What, however, can you do for your soon-to-be unemployed staff if you’re a lender without a servicing division? Or even if you do service loans, how will you help those people who may not have chairs when the production music stops? You can start by acting on the first bullet point above: tell people the truth. Doing so will demonstrate your appreciation for them and perhaps increase the likelihood of these folks returning to your firm when you might eventually need them.
And what about your local loan servicing companies? Maybe they’re not mortgage servicers, but they do handle other forms of consumer credit. There are individuals – often senior leadership -- in your organization who know people in these collections, credit card, and auto loan businesses, right? When the time is appropriate, reach out to their leaders to explain that you have well-prepared talent that understands consumer lending and will soon be available for them to hire. Consider it “bread upon the waters” to help those team members who have helped you be successful.
After all, won’t you want to be treated with this respect and assistance if you end up on the outside when the production treadmill slows down?