April 2, 2024
By Michael Harris, Partner, Mortgage Servicing Practice at BlackFin Group
In the latter 2023 and into this year we at BlackFin Group had been discussing and sharing about the pending increase in delinquencies, defaults, and potential foreclosures. As part of this is the anticipation, we suggested that servicers will need to prepare for the management of their loss mitigation strategies. Again, with much focus and many resources given to driving originations, how will these organizations pivot to effectively manage loss mitigation, borrower contact/retention, vendor management and compliance? With some of the recently published statistics it is hard to ignore that the time has come. Time is of the essence.
Mortgage Data
Foreclosure starts saw a marked 11 percent year-over-year increase, according to ATTOM, spotlighting regions grappling with heightened foreclosure risks. Notably, Florida, California, Texas, New York, and Ohio emerged as hotspots, collectively registering thousands of new foreclosure initiations. Florida led the charge with 2,732 foreclosure starts, closely mirrored by California's 2,730 and Texas' 2,694, revealing a pronounced vulnerability in the populous states to the brewing foreclosure wave.
According to ATTOM, as homeowners grapple with the ramifications of a market where elevated mortgage rates have squeezed affordability, average monthly payments have increased roughly $250 higher than a year ago.
We know many people moved during the pandemic-era boom. 60% of mortgage holders bought their homes or refinanced their mortgage in the last four years. Seems to make sense but pretty startling when you look at it.
Housing Data
Although new housing starts have increased in the last year, according to the most recent estimates from Freddie Mac, the country is short about 3.8 million units of housing, both for rent and for sale. This means that there aren’t any homes to keep up with the number of new households that are forming.
Redfin reported that there are 39% fewer homes for sale now than five years ago.
According to Redfin the median home price at $419,103 is now 40% higher than it was in January 2020. It did inch downward by 3.1% in 2023. May believe that sustained higher interest rates will continue to drive down the housing prices.
Investors bought 26% of the country’s most affordable homes in the fourth quarter—the highest share on record.
The potential impact of a mortgage default forecast on mortgage servicing can be significant. High forecasted default rates can signal increased risk for mortgage servicers, leading to tighter lending standards, higher interest rates, and stricter loan terms. Additionally, a high mortgage default forecast can increase the workload and financial strain on mortgage servicing companies.
High default rates can also lead to an increase in the number of loans that are delinquent or in default, requiring servicers to allocate more resources to collections and loss mitigation efforts. What are servicers doing now to mitigate future cost of defaults?
To mitigate the potential impact of a mortgage default forecast, mortgage servicing companies must closely monitor market conditions, borrower behavior, and economic trends. By staying informed and proactive, servicers can adjust their strategies and operations to adapt to changing conditions and minimize losses. Additionally, servicers can work with borrowers to explore options such as loan modifications, refinancing, or repayment plans to help them avoid default and stay in their homes.
This all takes allocation of internal and outsourced resources. Are the mitigation processes up to date and efficient. Is it more cost effective to outsource certain processes and if so, how do you manage their vendors?
In conclusion, these are some of the things that should be considered now as part of a mortgage default forecast which can have a significant impact on future servicing, affecting lending standards, borrower demand, investor confidence, and the overall financial health of servicing companies.
Michael Harris is Managing Director and Partner of the Servicing Practice at BlackFin Group. Michael has over 20 years’ senior executive management experience in default servicing and mortgage servicing. He and his team are subject matter in all aspects of servicing strategy, investor relations, process, compliance requirements. Prior to BlackFin, Michael was the President & CEO of Jennick Asset Management and was responsible for developing the pilot outsourced management program for Fannie Mae, Freddie Mac, and HUD while working with the top 10 mortgage servicing and capital markets firms. For more information contact info@blackfin-group.com