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56 unbelievably strong job by the default servicing industry of managing through those programs, in what has to be considered one of the most successful joint efforts the industry has ever participated in with the government." "For servicing businesses to survive the shutdown of the foreclosure industry is a success in and of itself," Sharga added. It was a transformational year for the industry, according to Jane Mason, CEO of Clarifire. "In 2020, people were just trying to survive. In 2021, people understood the changes and started embracing them. We needed to transform our way of thinking into a new way. And we did that." Souren Sarkar, CEO and Co-Founder of the Nexval Group, described 2021 as the year that the industry matured and evolved its business model in response to extraordinary stressors. "In 2020, when the pandemic hit, it was just chaos." e use of remote workers was new to most, but that was a reality most had adapted to by the start of 2021. According to Sarkar, Nexval—which offers variable capacity services designed to help mortgage servicers to scale up and down as volume dictates—"saw a tremendous increase in our uninsured servicing, title business, and property reports." NOT A RERUN OF 2008 Sharga credited some of the industry's success in 2021 to knowledge gained during the previous challenges the industry has dealt with, particularly the Great Recession. is time, the default servicing industry and mortgage note holders were able to forestall a majority of issues ahead of time, rather than trying to resolve those issues after borrowers were already in default. "at's much more difficult to do," Sharga noted. Other distressed borrowers during the previous crisis may not have been in default, but may have had negative equity in their properties. Due largely to fast-rising home prices over the past few years, negative equity is rarely an issue now—a factor which will help prevent a flood of foreclosures and then real estate owned (REO) properties hitting the market. A surge in REO could assist some segments of the industry that continue struggling, but that influx would also mean more foreclosures are happening, which is something the industry has been working to prevent over the past year. Servicers were also aided by a strong underlying economy and historically low interest rates and unemployment, factors that weren't present during the Great Recession, said Sharga, who also credited the Consumer Protection Finance Bureau (CFPB) for putting rules in place that "were reasonable from a servicing perspective. ey weren't as nearly as draconian as they might have been given the kind of enforcement mentality that you would expect from this management team." ere were casualties and negative impacts within the industry, however. Not all default servicing businesses survived, and many of the financial services legal firms that aid servicers struggled adapting to the protracted low-volume environment. Some went out of business, while others were acquired by stronger companies, Sharga said. "We've also seen a lot of staff redeployed, which is good for the individuals at those companies." As we entered the last quarter of 2021, signs were beginning to show of a return to something resembling "normalcy." RealtyTrac reported foreclosure activity started moving up modestly in September, a trend that Sharga expects to continue into the second half of 2022. A growing number of lenders held on to their mortgage servicing rights in 2021, according to Allen Price, SVP of Sales, Marketing, and Client Management for BSI Financial. is led to growth opportunities for many industry subservicers. Price explained, "We saw the subservicing business grow not necessarily because there were a lot of contracts moving around, but because of the higher focus on retaining rights." However, there was a decline in mortgage servicing rights volume for BSI Financial as aggregators priced aggressively to build their portfolios, Price said. "Some were offering what we thought was crazy pricing. We thought some of that pricing was unrealistic relative to assets, so we didn't play in that space." THE YEAR TO COME "e likelihood is that foreclosures will pick up and get back to more normal levels," Sharga said. However, any pickup in business will be deterred, at least temporarily, by continued restrictions on foreclosures by some states and municipalities. e varying assortment of local, state, and federal rules present regulatory and compliance challenges for servicers, Sharga "In 2020, people were just trying to survive. In 2021, people understood the changes and started embracing them." —Jane Mason, CEO, Clarifire Cover Story By: Phil Britt

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