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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 54 January 2024 F E A T U R E S T O R Y session of an asset it never wanted in the first place, leading to the costs of asset management, property preservation, and resale. Expect lenders to continue to do all they can to avoid foreclosure— whether that's using loan modifications or things like mortgage forbearance or deferments (as we saw so widely in 2020 and 2021)—to minimize costs and recover some or all the planned revenue. Lenders are also seeing decreased interest in investor participation at foreclosure auction sales. SFR and other investors are becoming gun-shy because of the volatile market and soaring rates, which is leading to a decrease in what those who are participating are willing to pay. The result will likely be an increase in bank-owned property—a result no lender relishes. Technology has dramatically evolved since 2010, and its role in the default and foreclosure segment is no exception. Communication has long been a chal- lenge for servicers and lenders alike when attempting to negotiate with homeowners behind on their mortgage payments. Now, however, with the growing use of apps, interactive technology, and even AI, servicers and lenders are finding it easier to reach out to reluctant homeowners and present alternatives about which they might otherwise remain unaware. During the pandemic, in fact, we saw homeowners (and credit card debtors, auto loan holders, and more) increasingly able to request deferments by simply visiting a servicer's website and clicking a button. In some cases, even, a decision was able to be made quickly—and perhaps without even hav- ing to require a conversation or additional information. While some of that came about because of the extraordinary crisis that pandemic shutdowns presented, the "pipes" for better communication between creditor and debtor are now in place. Training and Technology—The Path Forward T he mortgage industry has also be- come much more aware of the neg- ative optics foreclosure often presents. Many times, a default situation comes on the heels of life-changing trauma: death, divorce, terminal illness, job loss, or disability. It's almost impossible for any lender or servicer—especially a high-rev- enue lender—to threaten to possess the home of homeowners facing such circumstances without the risk of pro- jecting negative imagery, even if they've followed the letter and the spirit of the law completely. The process may be justified, and possibly even underutilized at times (e.g., in blighted neighborhoods dotted with abandoned properties), but it's always poorly received in the court of public opinion and, subsequently, the compliance sector. As a result, an increasing number of servicers and lenders are leaning on professionals specially trained to help homeowners who are fatally delinquent on their payments to relocate, under- stand their rights, and receive helpful services about which they were previ- ously unaware, such as legal assistance and counseling. The recurring image of distraught evictees being forcibly re- moved from their homes is something no servicer or lender wants to see attached to their name. Now, far more than we saw around 2010, the mortgage and real estate industry is combining the human touch with technology to create a more compassionate foreclosure and eviction process. In so doing, they're also realizing decreased costs from the entire process. Although the foreclosure rate has hovered near zero for years now, certain economic conditions may force lenders once averse to the process to make use of the tool again. Fortunately, increased awareness by the mortgage industry about how foreclosure is perceived, new technology, better training, and more emphasis on assisting homeowners potentially facing the process have all prepared the default segment not only to better manage any sudden increase in volume but also to find loss-reducing alternatives more often. Foreclosure is an unfortunate but necessary element of any lending lifecy- cle. There will always be borrowers who find themselves unable to live up to the terms of their loan agreement. Without recourse in those cases, the system would eventually crumble. The key to mitigating the human toll of foreclosure is using improved technol- ogy and incorporating another layer of humane behavior into corporate policy. For example, perhaps lenders could put more resources and training into ensur- ing that foreclosed-upon homeowners are relocated and given the tools and education for a fresh start and a way back to homeownership. Or perhaps the Freddie Mac First Look initiative could be a roadmap for more REO properties being funneled to- ward first-time homebuyers or renters in- stead of investors. Whatever the formula, there's much that can be done to lessen the impact of foreclosure without simply eliminating the process. It's likely that the next default wave will see an increase in the use of these tools as well. Foreclosure is an unfortunate but necessary element of any lending lifecycle. There will always be borrowers who find themselves unable to live up to the terms of their loan agreement. Without recourse in those cases, the system would eventually crumble.