DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/1498952
May 2023 ยป thefivestar.com 29 May 2023 C O V E R F E A T U R E How To Responsibly Manage Pricing Exceptions Featuring Alston & Bird's Nanci L. Weissgold and Melissa Malpass WATCH NOW AT conversations.qcally.com ment and liability duration. The banks invested in long-term, low-interest-rate Treasury bills and mortgage securities while using the bank's depositor money (short-term debt or liabilities to the bank). They didn't anticipate interest rates rising, which made the assets the bank invested in less valuable. As interest rates increase, assets with lower fixed interest rates go down in value. Muoio: The two events are very different. Among the ingredients triggering the Great Financial Crises (GFC) in 2008 was extremely liberal credit on home mortgages. Once home prices turned down, the highly leveraged mortgages were underwater very quickly. Given the scope of the U.S. housing market and its impact on the overall economy, the entire financial system was strained. In comparison, the recent bank failures were primarily driven by the unprecedented tightening by the Fed with some banks caught flatfooted with bond portfolios that rapidly depreciated. The other ingredient was the unwinding of the crypto boom, but while this clearly had a major impact on banks like Silicon Valley Bank that were highly involved with firms in that business, it is far less pervasive than housing. Hopefully, all this means that the current situation can be contained more easily. The one constant in both the GFC and the recent banking crises, as well as most financial panics throughout history, is that when confidence is lost, runs on bank depos- its ensue and [are key contributors] to institu- tional failures. What is unique with the most recent banking crises, however, is the speed at which the panic sets in. The failure of SVB and Signature occurred over approximately 48 hours, compared to a comparable four or so days for WAMU during the previous crisis. So, appropriate capital requirements remain essential. Preuss: We learned in the financial crash that homeowners will do what benefits their families in a crisis. The problem is, they often don't know what course of action to take. They are unlikely to go to their lending institution for answers, which is why the lenders that performed best during that crisis took the initiative to go to their borrowers. Mortgage servicers will tell you, as they've told us, that 30% of homeowners will not respond to calls, texts, or emails when they face a hardship. That means going to the streets would be necessary and knocking on doors will be the only way to get borrowers back on track. In-person, face-to-face outreach has been a key ingredient to effective loss mitigation strategies for years. Today, there are plenty of technology-based methods to communicate with, but unfortunately, many consumers have learned to ignore these methods. This is so common that the culture has coined the word "ghosting" to describe this lack of response. Given the amount of equity that could be lost if a property had to move to foreclosure today, it is essential all steps are taken to communicate and educate homeowners.