Default Services Outlook
By Victor Kang, Rubin Lublin, LLC
As we near the end of 2020, the mortgage default industry is starting to turn its eyes towards the next year and what the future may hold. This past year introduced new phrases and concepts to the workplace like “social distancing,” “zoom calling” and virtual or remote-anything have become the norm. And, so too has describing everything 2020 as being “unprecedented” and “once-in-a-generation”. In short, there is no reliable predictor for what the next year may hold, but I will take a stab at what 2021 might mean for the mortgage default industry.
As I draft this article in the middle of December 2020, the United States is delivering the first COVID-19 vaccines to its citizens. A Gallup Poll was also released in December 2020 showing that 63% polled in the US would take a COVID-19 vaccine – an increase from only 50% willing to take a vaccine just 3 months earlier. By the time you read this article, vaccination distribution in the US will have already begun. Politically, a transition from the Trump administration to Biden’s is slowly taking place, with our home state of Georgia taking center stage with 2 U.S. Senate runoffs that could sway the balance of power in Washington DC. Should the Democrats flip both seats, the split in the Senate would be 50-50, with Vice President-Elect Harris casting deciding votes. Nevertheless, such a slim majority is not likely to provide the Biden administration with carte blanche to rewrite 4 years of Trump policy. Therefore, there will be plenty of negotiating and compromising going on in Washington DC, especially as it relates to housing policy, especially as it relates to a bailout of the servicing industry, aid to the small businesses that make up our industry, and extensions of moratoria on foreclosures and evictions. Biden’s recent nomination of Janet Yellen for Secretary of Treasury has been generally well received. Yellen who chaired the Federal Reserve during the aftermath of the Great Recession of 2008, is seen as being far more moderate than many of the candidates for the position who were supported by the far left.
The question that everyone in our industry has on their mind is when will things return to normal. So much of that depends on when the foreclosure and eviction moratoria will end for good. With COVID raging out of control currently and the holiday season upon us, FHFA has now extended the moratorium on foreclosing federally backed mortgages to January 31, 2021. Other federal agencies are expected to follow suit regarding foreclosures as well. As to evictions, the CDC Order barring evictions is set to expire in just a couple of weeks on December 31, 2020. I fully expect that the CDC or Congress will extend that bar on evictions out to January 31, 2021 or beyond very shortly. Beyond the federal regulations and legislation, many states have also implemented their own moratoriums or measures aimed at our industry.
With these critical issues of housing policy effectively punted to the Biden administration, the question then becomes what a Biden administration will do with respect to foreclosures and evictions. On the origination side, Biden will inherit an extremely healthy housing market. Mortgage interest rates are at historically low levels. Home values and, correspondingly, home equities have remained high. Sales of new and existing homes are robust. This, coupled with the emergence of widespread vaccination against COVID, should lead to a more shorter-term solution for foreclosure and eviction moratoria. Could Biden seek legislation that extends moratoria beyond just federally backed loans? The answer to that is yes. However, I do not see it as likely since the current moratoria seems to be achieving the stated goals without much public backlash. In any event, my bet is that, barring a major and continuing outbreak of COVID leading to lockdowns that would extend into late January and February 2021, all moratoria would be allowed to expire by the end of April 2021 or June 2021 at the very latest. Thus, things would start to return to normal in Q3 of 2021. While nobody is wanting to see homeowners affected by COVID foreclosed or evicted, the reality may be that Q4 of 2021 might become terribly busy in the world of mortgage default and all sides of the industry should be prepared to be fully staffed to tackle the backlog of defaulted mortgage inventory.