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The Top Pandemic-Related Challenges for Lenders and Servicers

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As the COVID-19 pandemic sent waves across the nation, lenders and servicers have worked to adapt quickly to market changes, new mandates, and policy updates.

For lenders, clarity on loan eligibility, supply chain disruption, and staff health have been the primary challenges since the pandemic began impacting the U.S., while services’ biggest challenges have been understanding post-forbearance options and understanding forbearance programs overall. These were the concerns cited as most pressing in a survey Fannie Mae conducted of more than 200 senior mortgage executives in May.

Thirty-six percent of loan originators cited “gaining clarity from secondary-market investors on loan eligibility guidelines” as their No. 1 or No. 2 challenge related to the pandemic.

“Many investors were making significant changes to guidelines. The changes were different from investor to investor and the timing of effective dates was also different. Very difficult to manage,” one executive at a mid-sized institution told Fannie Mae.

An executive at a smaller institution said, “Changes have been fast, causing everyone on the chain to play defense and disrupting the flow of credit.”

Supply-chain disruptions also ranked high as a top concern with lenders noting that it is taking longer to get appraisals and verifications.

For servicers, the clear concern was understanding post-forbearance options, which 44% of servicers surveyed cited as their highest or second-highest challenge during the pandemic.

“The new forbearance policies are making it extremely easy for a borrower to request forbearance. That is a good thing since many people are impacted directly or indirectly by COVID-19,” said one executive at a mid-sized institution, according to Fannie Mae. “However, how a customer exits forbearance will not be easy for the customer and will be complicated for servicers. There needs to be an easy exit approach for consumers to reestablish their loan with no downstream impacts.”

Getting clarification on forbearance programs was cited as a top concern among 33% of servicers. Other challenges have included understanding and adapting to customer relief requirements, maintaining adequate capacity to handle the needs of distressed borrowers, and increasing the capacity to deal with a potential increase in default servicing costs.

As to be expected, loan originators experienced an increase in the use of digital applications among their clients during the pandemic. Sixty-nine percent of lenders reported an increase in video meetings with clients, 80% noted an increase in online applications, and 72% reported an increase in electronic verifications during the pandemic.

Fannie Mae also surveyed executives on their top business priorities for the year, and they are largely in line with the past few years. For the past four years, “business process streamlining” and “consumer-facing technology” have been the top two priorities.

Business process streamlining is the top priority for this year, ranking as the most important or second-most important for 39% of businesses. This is up from 29% last year.

Consumer-facing technology was the top or second-highest concern among 33% of professionals, down from 41% last year.

According to Fannie Mae, COVID-19 “has created a new urgency to streamline business processes and enhance consumer-facing technology to ensure continuity and efficiency amid rapid changes.”

Cost-cutting was cited as a major priority for just 15% of executives, but among those, the main area of cost-cutting will likely be general and administrative expenses. Sixty-two percent of those who aim to cut costs plan to cut costs in this area.

Fannie Mae conducted its survey of 254 senior executives between May 5 and May 18. Ninety-six of the institutions surveyed were smaller institutions, 62 were mid-sized, and 71 were larger institutions.

About Author: Krista F. Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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