CEO Tom Showalter in DS News

Unexplored Territory

August 8, 2022

The default servicing industry and mortgage marketplace overall has been through some changes over the past 24-months-plus. On March 11, 2020, the World Health Organization (WHO) declared the novel coronavirus (COVID-19) outbreak a global pandemic. It was at this time when WHO Director-General Dr. Tedros Adhanom Ghebreyesus noted that, over the previous two weeks, the number of cases of COVID-19 outside of China had increased 13-fold, and the number of countries with cases increased threefold.

The hustle and bustle of everyday life came to an abrupt halt, as we began the advent of the era of social distancing, and it appeared that life as everyone had known it, changed for the foreseeable future.

The ripple effect felt by the housing finance market was just as jarring, as a once-flourishing U.S. economic landscape was jolted, with businesses shuttering and industry and its customers entering unexplored territory.

According to the Consumer Financial Protection Bureau (CFPB), since the beginning of the pandemic, the number of borrowers behind on their mortgage increased to a level not seen since the height of the Great Recession in 2010.

The government acted swiftly, working with the industry to enact policies and programs designed to help keep Americans in their homes. Just 16 days after the WHO declared COVID-19 a pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.2 trillion economic stimulus bill was signed into law by President Donald Trump. Homeowners nationwide impacted by the loss of income benefitted via $300 billion in one-time cash payments to individuals who submitted a tax return, with most single adults receiving $1,200 and families with children receiving more; $260 billion in increased unemployment benefits; and the establishment of the Paycheck Protection Program (PPP) that provided forgivable loans to small businesses with an initial $350 billion in funding.

Sections 4022 and 4023 of the CARES Act involved mortgages, protecting those with federally-backed mortgages from foreclosure until at least August 31, 2020, and allowing the right to request a forbearance for up to 180 days. Section 4024(b) of the CARES Act provides for a 120-day moratorium (beginning on the day the Act was signed, March 27, on eviction filings for rental units in properties that participate in federal assistance programs, or have a federally backed mortgage or multifamily mortgage loan.

In the CFPB’s “Characteristics of Mortgage Borrowers During the COVID-19 Pandemic” report released in May of 2021, it was found that, despite protections being equal for all under the CARES Act, experiences differed substantially by race, with roughly 3.7% of white borrowers in some stage of forbearance, and 0.5% deemed delinquent. The same CFPB analysis found that Black and Hispanic borrowers were much more likely to experience either of these outcomes, with Black borrowers 2.5-times more likely to end up in forbearance (9.2%) and two times more likely to end up delinquent (1.0%) compared to white borrowers. Hispanics were 2.3-times more likely to end up in forbearance (8.4%), and nearly 1.5-times more likely to end up delinquent (0.7%). Other-race borrowers were also more likely to experience forbearance compared to whites, but were less likely to end up delinquent.

As variants of COVID-19 began to emerge, the proverbial “light at the end of the tunnel” grew more and more distant, but the industry again jumped into action and worked hand-in-hand with the government to ensure Americans remained in their homes during this unprecedented time. The Federal Housing Administration (FHA) issued Mortgagee Letter 2021-15, Freddie Mac issued Bulletin 2021-23, and Fannie Mae updated Lender Letter 2021-02, all of which extended the previously announced foreclosure moratoriums through July 31, 2021.

As programs geared to assist borrowers during the pandemic began to wind down, the current housing situation could be best described as challenging for many.

First-time buyers are still challenged by record-high prices, as Redfin reported that the median sale price for U.S. homes during the four weeks ending July 10 was up 12% year-over-year at $393,449, down just 0.7% from its record-breaking June peak.

The U.S. Consumer Price Index (CPI) found the annual inflation rate accelerated to 9.1% in June 2022, up from May’s reported rate of 8.6%—marking the highest rate recorded since November of 1981.

The National Association of Home Builders (NAHB) reports that volatility in the lumber market since April 2020, has sent builder confidence into a tailspin, as softwood lumber prices have increased enough to add $14,345 to the price of an average new single-family home, and $5,511 to the market value of an average new multifamily home, as builder confidence dipped for the seventh straight month.

DS News recently had the opportunity to chat with a cross-section of the industry to gauge the current state of the marketplace. And while “uncertainty” remains the theme of the day, lessons learned over the past 24-plus months since the outset of the pandemic are proving valuable as the market chases a state of correction. From servicers to subservicers, to tech providers and credit unions, all were impacted and here are their insights.

Thomas Showalter, Founder & CEO, Candor Technology
Candor Technology offers the services of its Loan Engineering System (LES) as a SAAS (software as a service) to mortgage lenders. Led by Thomas Showalter, Candor LES performs the highest quality underwrite as part of a portfolio of fulfillment services that Candor offers to mortgage lenders.

“Our biggest challenge is helping our customers understand the difference between automation and innovation … automation can only take what you currently do and do it faster or with fewer steps,” Showalter said. “Candor’s focus is on helping our clients survive and thrive in this challenging market, and we are doing everything we can to provide them with the technology and insights they need to get through this downturn and succeed well into the future. To help with this, Candor will be extending its offerings from the fulfillment space to the POS/direct-to-consumer space, and in parallel also take its services to the due diligence arena with pre- and post-close due diligence services that are fully automated and tremendously more robust and consistent than conventional services, which are manual and suffer quality, cost, and speed problems.”

Continued cooperation with regulatory bodies is a huge step that Showalter feels the industry is taking in the right direction.

“It’s a fair expectation that increased regulatory scrutiny lies ahead, despite the recent performance of the mortgage market,” Showalter said. “The CFPB is signaling extensive underwriting reviews concerning the way servicers treated COVID-19-linked loans in forbearance. And of course, servicers are naturally looking to level up the consumer experience. So, there is a growing duality of expectations from the underwriting services. We recognize that without an expert system, the initial servicing purchase or the transfer of servicing rights consumer data can get lost or diluted. The corrupted data presents an additional challenge when the CFPB reviews the loan, keeping in mind the CFPB is naturally on the side of the consumer. Ready access to this vital information is not only crucial for both the lender and servicer, but additionally helps with predictive analytics to adjust servicing strategy in real-time.”

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Candor Technology Contact

Jacob Gaffney

Gaffney Austin LLC

817-471-7627