Six months after forbearances skyrocketed in March, millions of homeowners are still struggling. Naturally, COVID-related homeowner strain has drawn comparisons to the 2008 economic crisis, but there are key differences between then and now. Here are three reasons why today’s housing economy may play out more positively than 2008.
1. Risky Behavior (Not a Pandemic) Caused the 2008 Crisis
The driving forces behind the 2008 economic collapse are well-documented. Aggressive lending practices and risky, low-documentation loan products that over-leveraged borrowers combined with minimally regulated securitizations and derivatives to create a massive housing bubble and crash that impacted the entire global economy.
Today, we have far more robust regulatory measures in place, many of which were developed as a direct response to the mistakes made leading up to the subprime crisis. These guardrails have helped minimize risk and promote responsible lending in the mortgage market.
Current homeowner hardships weren’t triggered by structural housing marketing deficiencies; this time around, any housing market deficiencies are merely a byproduct of a much larger problem.
COVID-19 has temporarily destabilized people’s ability to pay their loans. After starting 2020 with record low U.S. mortgage delinquencies, total 2Q 2020 delinquencies rose to 8.22%, and this jump is concentrated in states hit hardest by COVID. Per the MBA, late payments in 2Q spiked the most in New Jersey, Nevada, New York, Florida, and Hawaii — all states with a high percentage of workers in leisure and hospitality jobs that were hard-hit by the pandemic.
Forbearances have dropped and unemployment has declined since May. Roughly 3.0 million homeowners are in forbearance as of October 11, down 21% from 4.3 million forbearances in June. Good news so far, but the path of the virus will continue to dictate these dynamics.
Post-2008 regulations and government agencies (like the CFPB) as well as more nimble crisis-response policymaking have also helped soften COVID housing shock.
2. The Response Has Been Faster this Time
The government and servicing industry were slow to help homeowners in 2008 (and ill-prepared to handle the onslaught of defaults as the economy toppled). As a result, the foreclosure crisis lasted nearly a decade, with 7.8 million foreclosures processed between 2007 and 2016.
This time around, servicers and regulators have been much more proactive about preventing mass foreclosures. They’ve offered much-needed forms of mortgage relief, and so far it’s been working:
- Since April, millions of homeowners have benefitted from CARES-approved forbearance plans.
- Since July 1, the FHFA’s payment deferral program has helped thousands of homeowners exit forbearance.
- The FHFA’s foreclosure moratorium, expiring on December 31, has kept many homeowners from losing their homes mid-pandemic.
- Borrower’s credit is not negatively impacted by choosing to go on forbearance.
These actions have been critical to housing stability, and the Sagent team continues to work with GSEs and investors to advocate for these consumer-first policies in Washington.
3. Servicers Have Access to More Advanced Technology in 2020
Servicers in 2008 weren’t prepared to guide millions of homeowners through loss mitigation because they were relying on manual processes and legacy technology that hadn’t been updated in decades.
In contrast, servicers today are able to balance real-time customer care and compliance at scale thanks to smart, modern servicing technology.
Sagent is on the front lines powering this modern servicing experience for banks and lenders. We give them the tools to make it easy for homeowners to get mortgage relief from their phone (via our lender-branded, consumer-facing Account Connect suite) and streamline the loss mitigation process (via our servicer-facing LoanServ system-of-record and Tempo default management suites).
COVID has only accelerated Sagent’s consumer-first modernization of loan servicing for America’s top banks and lenders. It’s absolutely critical for homeowners to have this modern technology right now because strained homeowners need to know where they stand and understand the options available to them, and stable homeowners need to capitalize on record low rates.
The Outlook for 2020 and Beyond
Servicers (and fintech innovators like Sagent) have spent the past decade getting ready for this moment. From a policy and process standpoint, the industry is in a much better position to handle today’s mortgage market strain than it was in 2008.
Sagent is here in the trenches working with our servicer customers, agencies, and regulators to care for homeowners as we begin the second 180-day CARES forbearance allotment in October. If you’d like to discuss forbearance extensions, re-entries, exits, and what it means for your portfolio and compliance, please let us know.
If you’d like to discuss forbearance extensions, re-entries, exits, and what it means for your portfolio and compliance, please let us know.