The Critical Role of Real-Time Data for Servicers Staying Compliant with the Loss Mitigation Waterfall
The COVID-19 pandemic triggered significant changes in the national foreclosure policy, leading to an expansion of federal loss mitigation programs. In recent months, the Federal Housing Administration (FHA), the Department of Veteran Affairs (VA), the Consumer Financial Protection Bureau (CFPB) and the US Department of Agriculture (USDA) have introduced or updated loss mitigation programs. This influx of new initiatives has created a complex landscape of compliance rules that servicers must navigate swiftly. The most effective way to manage these demands is by leveraging smart technology and real-time data.
In February it was announced that the FHA would be extending their COVID-19 Recovery Options through April 30, 2025 as well as introducing a new Payment Supplement loss mitigation option for all FHA-insured Title II Single-Family forward mortgage loans. Under this program, if a servicer is unable to achieve the target payment reduction under FHA’s current COVID-19 Recovery Modification option, the mortgage must review the borrower for the Payment Supplement, adding a significant new workstream responsibility for servicers and their platforms.
Not long after, the VA announced a targeted last-resort foreclosure avoidance option, the Veterans Affairs Servicing Purchase (VASP) program. The program, which is modeled off of the FHA Payment Supplement loss mitigation option, is slated for full implementation by October 1, 2024, and will allow the department to purchase defaulted VA loans from external mortgage servicers and then modify their terms to allow veterans at risk of foreclosure a change to retain their homes. In a post-pandemic housing market where interest rates have remained high, the VASP program will guarantee a fixed 2.5% interest rate for the remainder of their loans.
The short timeframe for the VASP implementation has showcased how critical the inclusion of next-generation technology will be for servicers working to quickly implement the various loss mitigation updates flooding the industry, while maintaining seamless operations for homeowners. Incorporating metrics in real time is a key tool as servicers look to stay complaint in an ever-evolving mortgage industry. This will be increasingly important as additional loan types look to follow FHA and USDA in implementing last-resort loss mitigation options.
CFPB’s proposed updates to Regulation X which I previously wrote about, exemplify the housing industry’s new approach to loss mitigation and viewing foreclosure as a last resort after exhausting all efforts to keep homeowners in their homes. Like VASP, the Regulation X updates, which would make significant changes to the loss mitigation application, appeals and early intervention rules, would require servicers to implement significant platform updates. The burden of adopting these changes would be eased significantly with the support of automation and real-time data.
In response to rising interest rates, the USDA recently announced their Payment Supplement Account Demonstration Program (PSA). This pilot program is meant to minimize the risk of foreclosure and help rural homeowners stay in their homes. Borrowers who have received a loan through USDA’s Single-Family Housing Guaranteed Loan Program will be eligible for monthly relief payments until their loans are current. The program will be funded by a stand-alone Mortgage Recovery Advance (MRA) and will be effective through July 24, 2026, when the Rural Housing Service (RSA) can extend the program or terminate it.
This option, again, similar to the VASP program, is the last option in the loss mitigation waterfall. To qualify for this assistance, homeowners must first have their servicer determine their eligibility for any other retention solution prior to being approved to participate in the program. If the borrower is approved for the PSA program, the servicer will be responsible for staying compliant and using the designated MRA funds properly and submitting additional paperwork as requested.
The untested nature of this program, in tandem with the huge responsibility placed on borrowers, will require vigilance and organization from servicers. An advanced tech stack, equipped with real-time insights and workflow automation, is critical for success. For homeowners, a reliable and adept servicer will make all the difference as they navigate the complex and often stressful loss mitigation process.
Sagent’s Dara, a first-of-its-kind mortgage servicing platform, leverages real-time data to mitigate risk and deliver the best outcome for homeowners during challenging times. Dara, the first platform to unify all data and user experiences, is made of six core root components: Core, Data, AI, Default, Movement, and Consumer (Loss Mitigation). Dara’s loss mitigation services are capable of supporting FHA, VA, USDA, FNMA, FHLMC, and MI loans.
Dara’s consumer-focused automation allows homeowners (and servicers) to upload, update and notarize documents all from within the same system, expediting the claims process and relieving the stress of manual document management and review. Real-time updates reduce stress for homeowners by allowing them to manage every detail of their mortgage seamlessly. Dara’s blend of digital simplicity with smart human advice, accessible from any device, is what makes it the future of servicing.
As the housing industry moves into a post-COVID-19 era of putting off foreclosure as long as possible and continuously resetting the clock for borrowers, the embrace of technology will become more crucial than ever before. Services must evaluate their tech stack’s ability to keep up with the ever-evolving compliance changes and the unique needs of their homeowners. Leveraging real-time data and workflow automation is the most cost-effective and risk-averse path forward for servicers.
Matt Tully serves as the Chief Compliance Officer at Sagent.