Betting on what we know? – June 3rd, 2020

Issue #25: Betting on what we know?

I know it’s the last thing most mortgage-related businesses want to think about right now, but it’s time to get your compliance and QA programs together.

I know that, right now, it’s difficult to decipher what the markets will do next. One day, we hear terms like “new Depression” or “O-shaped recovery.” The next, we hear that housing will lead the country out of the post-COVID recession (and we may not even be in a post-COVID period just yet). It’s impossible to know what’s next, so we have to be flexible on what we don’t know. And we have to work with what we do know.

Here are a few things I know.

1.  We are looking at huge numbers of mortgages in forbearance. We’ve heard that maybe not everyone really needs forbearance. And we can’t assume they’re all unemployed. But close to 8% of all mortgages are currently in forbearance. That’s a lot. 
2.  We are looking at huge numbers of unemployed, although some are starting to get back to work. Combined with the previous number, it seems reasonable to expect that not every home owner in forbearance will be able to get right back on track when their forbearances end.
3.  We know that many businesses scale back on spending and investment in times of economic uncertainty, which includes hiring less.

All of that points to some level of economic uncertainty and hardship in the coming months.  Now, maybe the worst of the pandemic is behind us. And just maybe, the economy will rebound dramatically and unemployment numbers will wither quickly. So just maybe the vast majority of borrowers in forbearance will be ready to pick up where they left off when their six months are up. But, realistically, the possibility of default and foreclosure spikes is higher than it has been in a long time. And we know from experience that when people lose their homes and jobs, it’s a political matter.

Oh, by the way, on top of 100-year pandemics and murder hornets, we have a presidential election in a few months. It’s very, very likely the economy (jobs and housing included) will be a VERY political issue throughout. And when an issue becomes a political football, regulation and enforcement often follow.

Admittedly, the mortgage industry has enjoyed some level of relaxed scrutiny over the past 2 or 3 years. Of course, this is in contrast to some of the most aggressive regulation and enforcement we’ve ever seen just before that. Either way, when the economy changes; when people lose their jobs and when foreclosures go up; the government gets involved.

Maybe you disagree. I certainly don’t have a crystal ball. But if I were a betting man, I’d put my money on more aggressive enforcement. That’s why I’m shoring up my quality assurance and compliance programs right now. Maybe you’re taking the opposite bet. I truly hope you’re right. But if I’m wrong, I’ve still improved my operation. Those betting against increased enforcement or playing fast and loose with their compliance programs…well, that’s a much higher cost.

I’d love to hear your thoughts about whether or not you think the mortgage industry may see increased regulatory scrutiny in the coming few years. If you’ve got some insight on this or other questions of your own, send them to me and I’ll compile them here in a future Deeper Thoughts! Just email me at jpaolino@lssoftwaresolutions.com.