In the unprecedented times of COVID-19, the current forbearance rate on all mortgage loans in the U.S. is hovering around 8.46%, higher than it’s been since 2009. While many borrowers will be able to work with their servicers to come out of forbearance, a portion of borrowers will default on their loans and proceed to foreclosure. These unique circumstances have prompted servicers nationwide to try and strike a balance between recouping their costs and keeping people in their homes. The cost associated with corporate advances include anything from late charges to property inspection, valuation, and preservation fees to costs associated with foreclosure. Costs can add up quickly for servicers and accumulate into the millions of dollars.
The Burden of Claim 571 Reimbursement
The industry will likely experience multiple overlapping “waves” of impact. The first wave, which the industry is already seeing, is an influx of forbearances and the subsequent accounts that require servicing. Some accounts will proceed to foreclosure. For every account in which corporate advances are performed, servicers will need to file a reimbursement claim known as Claim 571. Given that the current pandemic has the potential to drive foreclosure rates higher than we have seen in the last decade, servicers will be required to file tens of thousands (maybe more) of these claims to recoup the losses they have incurred. To manually service these accounts and their expense lines, servicers will also be required to take on substantial overhead. In an already less than ideal situation, the sheer volume of claims will push reimbursement out for years.
“Servicers are responding as quickly as they can to the volume crisis that’s already underway, but there’s only so much they can do with a human workforce,” said Farhat Kidwai, mortgage servicing expert.
This is where Robotic Process Automation, or RPA, comes in. Outsourcing Claim 571 filing to robotic workers allows servicers to accelerate filing and reimbursement, while maintaining complete accuracy. Robotic workers are ideal as they can scale instantly to handle any volume and are available for work 24/7. This helps servicers in a variety of ways:
- RPA allows servicers to avoid the overhead cost associated with clearing Claim 571 volume.
- Accelerated filing allows servicers to sidestep significant carrying costs that could accrue over two to three years. This could mean the difference between paying $1000 in carried costs on an account vs $1 million. For example, if a servicer was paying carried costs on a $1 billion corporate advance, this could mean $30 to $40 million in additional charges over a couple of years.
- If a claim is filed early and denied, it is much easier to identify the issue so that the claim can be re-filed quickly. Say a landscaper charged too much for their work and an investor requests that the servicer go back and correct that bill. After a year, you might have lost track of who did the work or exactly what services were rendered. But when a claim is filed rapidly, you have recent recourse with service providers. A servicer is much more likely to recall these important details that can determine the difference between thousands of dollars in reimbursement. A claim can be re-filed immediately and increase the chances of full imbursement.
- Automation can be utilized throughout the servicing cycle to help servicers keep their overall debt lower, which will prevent mortgage companies from becoming over-leveraged and maxing out their credit lines.
One may wonder, if delay in claim filing causes so many issues, why aren’t claims filed right away? Simply put, experienced personnel is difficult to come by these days. At the current and expected volumes, servicers would need an army of employees to file reimbursement claims as they come in. Most servicers wait until there’s a milestone on the account, like reaching the end of foreclosure. But in doing so, the process is delayed, creating a greater risk for loss.
“Even if a company hired 300 to 400 additional employees to take on the unexpected volume, employees simply cannot process this number of claims quickly enough to avoid or overcome the issues associated with Claim 571,” said Kidwai.
HPA’s RPA-as-a-Service solution is the only one on the market today that can automate Claim 571 and has successfully worked with a Top 5 Mortgage Servicer to do so. Automation helps servicers file unlimited claims as quickly as they need to, further reducing the risk that reimbursement will be incomplete or denied. With robots filing claims, servicers are free to focus on what they do best: assisting borrowers and servicing accounts.
Unfortunately, the industry impact from COVID-19 likely won’t end here. Servicing experts expect at least two more significant waves of impact as past-due accounts accumulate and outbound collections rise. Many borrowers who didn’t plan ahead will be scrambling to regain financial wellness, and require some sort of repayment plan, modification, or liquidation. The impact on the servicing industry will be felt heavily and getting ahead of the volume spikes with an automation solution will help normalize operations and keep the industry afloat.