The key to preventing foreclosures after a natural disaster
To put it mildly, 2017 — with three major hurricanes, wildfires and other extraordinary events — was a living stress test of servicers' and government agencies' preparedness plans for helping borrowers in damage zones.
Their coordinated responses appear to have improved from past natural disasters, industry and government representatives said Wednesday during panel discussions at the Mortgage Bankers Association Servicing Conference in Dallas. Their efforts have aided customers and helped prevent delinquencies from becoming foreclosures.
But there is room for further improvement, especially in communication before, during and after crises among government agencies and servicers and with customers, the officials said.
"It is all about communication," said Joaquin Tremols, the director of the single-family housing guaranteed loan program for USDA Rural Development.
When these disasters hit, it was the ability of the various groups to come together with a coordinated message that made the difference in the response compared with the past, said Alex McGillis, senior team leader for government products at Quicken Loans.
But the agencies had to start from scratch. After Hurricane Katrina, the Department of Housing and Urban Development worked with the Small Business Administration and the Federal Emergency Management Agency, along with other government mortgage loan guarantors, to create a playbook to deal with borrowers in the aftermath of a large storm, said Ivery Himes, HUD's director of single-family asset management.
But the people behind it changed jobs, or left government service, and as a result no one knew where that playbook was anymore. Her suggestion was that every quarter or so, the government guarantors need to sit down with the SBA and FEMA to determine what new initiatives are needed to deal with a future natural disaster.
It's not just enough to have a strategy, said McGillis. Servicers need to have "a good feedback loop" to learn what is happening, not only from their own staff but also from their clients. And that feedback must be sent to the right people for action, he said.
But while much of the discussion was about communication and coordination after the disaster, the time to communicate with consumers is before a storm happens, said audience member Julio Aldecocea, the managing director of Lakeview Loan Servicing in Coral Gables, Fla.
He suggested producing an infomercial with the Weather Channel to help educate borrowers on what they can do to prepare for storm damage to, or destruction of, their home.
To prevent foreclosures, servicers must share data not only within the industry but with state, county and local officials so they can help residents, said Texas Land Commissioner George P. Bush during another session which concentrated on Texas.
But there is still room for improvement. "We're always looking for ideas," said Tremols.
Forbearance policies are another area where communications can be improved between the servicer and client, McGillis said. Many consumers don't understand that forbearance doesn't change the amount they owe. So servicers need to train their staff members to have "that difficult conversation" with consumers about the specifics of the forbearance policy, he said. But that message needs to be balanced with compassion.
Flagstar Bank in Troy, Mich., communicates in stages with borrowers that are in forbearance so they know what their options are to resolve their loans in arrears, said Courtney Thompson, the bank's first vice president and director of default servicing operations during a third session on the topic.
In each letter, the bank provides a little bit more information to borrowers. The first letter tells borrowers in affected areas that Flagstar has solutions and will hear more from it shortly.
The letters discussing options come when a borrower is 45 and 75 days late, and that is when the bank sees a spike in loss-mitigation applications, Thompson said.
Servicers should update their response protocols and take advantage of available data as well as other resources, said Scott Giberson, the principal for flood compliance at CoreLogic, who asked rhetorically: "Are you still responding the same way you did 20 years ago?"
The need to work with other groups to help consumers recover is important, said FEMA's Kevin Hannes, who was on the panel with Bush. The average assistance provided by his agency to someone affected by Hurricane Harvey was just $4,500, which is just "seed money” to start rebuilding, he said.
While flood insurance maps should be updated frequently, such changes would not have prevented some of the damage in the Houston area, where there have been four serious floods in the last five years.
Instead everyone must "look at where individuals are putting their properties and have them understand what the risks are," Hannes said.