Government-sponsored Fannie Mae recently began explicitly allowing mortgage companies to use provider technology that could help reduce turnaround time in submitting information used to evaluate distressed borrowers for loan modification options.
The automation that gives mortgage lenders consumer-approved access to banking or payroll information was used to qualify a borrower for a new loan, but is less commonly used in the service sector, where the adoption of new technology was less common earlier than the pandemic .
Fannie Mae's decision to make it clear that she will allow digital data reviews of income and wealth data in her “Borrower Response Package” could prove useful as pandemic measures wind down and a wave of people move to new options. However, it remains to be seen what the servicer and borrower adoption rate will be.
"Fannie, risking the digitization of the origination playbook and bringing it to the service is a huge leap," said Brent Chandler, Founder and CEO of FormFree, in an interview. FormFree is one of the providers that offers digital reviews and analysis of data from consumer banks or payroll providers. Its reviews provide an analysis of a year or two of historical data on borrowers.
Freddie Mac does not have a formal policy regarding the use of asset and income checks in maintenance, but generally allows them to do so based on guidelines for working with outsourced vendors that require them to offer compliant and secure systems Seizing business continuity and "quick and accurate responses to borrowers".
FormFree has received many requests to use digital reviews for servicing from existing customers who are using its technology to qualify borrowers for new loans, Chandler said.
Among the developments that are sparking interest are the fact that the Consumer Financial Protection Bureau has warned service providers that it will monitor closely to ensure they are compliant with borrowers after the suspension of payments ends, he said.
Another reason for the rising interest rates is the volume of credit service providers who have to process after the deferral has expired.
"Two million people are still forgiving today and … very soon … they will be coming out," noted Christy Moss, a director at FormFree.
While that number is less than half of the peak of the pandemic, it's still much higher than it was before last March, according to Black Knight data. Before that time, very few loans were bad. The latest weekly data from the Mortgage Bankers Association shows that more than 4% of overall borrowers are lenient, while 2.09% of consumers are in the same boat with Fannie or Freddie loans.
Digital verifications of borrower data have become more important in the industry since Fannie Mae's Day 1 Assurance Program was launched in 2016, and some vendors believe that the technology will increasingly be used to serve as the need for credit modification increases. (In the case of originations, however, the introduction of the technology was in part driven by the advantageous relief for representations and warranties for the data points, which does not apply to maintenance.)
"Much like using digital verifications for origination, we're just starting out with maintenance," said Andy Sheehan, President and Chief Operating Officer of Finicity, in an email. “We have already had discussions with partners, including key players in the service ecosystem, to implement the process. So you'll see it grow, and I'm guessing pretty quickly. "
Verification of assets is generally done on the basis of data from direct sources from financial institutions to bank or investment accounts. Income verification can be done through integrations with payroll providers, which providers approach in slightly different ways. Finicity and FormFree both experimented with using bank data alone for this purpose as participants in a GSE pilot called Single Source Validation.
The most common result of borrower ratings on forbearance exits can be a relatively new servicing option known as deferral, where the borrower simply pegs the missing payments to the end of the loan.
However, some borrowers are expected to experience long-term financial hardship due to the pandemic, which could cut their incomes so badly that they might have to ask for a lower payment or leave their home. Income and wealth reviews can play a bigger role in these situations.