September 14, 2020
Your clients need to keep making their mortgage payments until they receive “documented” relief from their loan servicer, otherwise they may dramatically hurt their credit rating... and then they won’t be able to take advantage of a lower rate by refinancing! Orion has been around for many years, and we have never seen anything like what we’re seeing now with the world economies. Yes, we offer great rates and service, but believe that it is important for our clients to understand some basics of how the mortgage industry works so that they can best help the borrower!
Let’s begin with the mortgage process. A borrower is often referred to a broker in their local area to obtain a mortgage. The loan is processed, underwritten, documents are drawn up, and the loan is closed. Congratulations are due your client!
Once closed, the loan is handled by a servicer, which may or may not be Orion. The borrower submits payments to the servicer but the servicer does not “own” the loan. Sometimes the borrower will wonder why they don’t send a payment to the broker. The servicer is simply maintaining the loan, collecting payments, and forwarding them to the investor, paying taxes and insurance, answering questions, etc.
While they maintain or “service” the loan, the asset itself is sold to an aggregator or directly to a government agency like Fannie Mae (FNMA), Freddie Mac (FHLMC), or Ginnie Mae (GNMA). Your client’s loan is then typically then gets placed inside a large bundle, known as a mortgage-backed security (MBS) that can be sold to the public. This shows up in different investments like mutual funds, insurance plans, and retirement accounts.
When interest rates drop dramatically as we have seen here in 2020, there is an increased incentive for many people to refinance their loans more rapidly through their broker and Orion. This causes the loans that a servicer had on their books to pay off sooner…often before that 3-year breakeven period. This servicing runoff creates losses for the servicer. The more loans in a servicer’s portfolio, the greater the loss.
But the Coronavirus has caused a virtual shutdown of the U.S. economy, which has created an unprecedented number of job losses. This adds a new risk to the servicer because borrowers may have difficulty paying their mortgage in a timely manner. And although the servicer does not own the asset, they have the responsibility to make the payment to the investor, even if they have not yet received it from your client, the borrower.
In the government’s effort to help those who have lost their jobs because of COVID, it has granted forbearance of mortgage payments for affected individuals presenting an enormous obstacle for servicers who are obligated to forward the mortgage payment to the investor, even though they have not yet received it. And things become complicated, so speaking to an Orion AE is a good place to start if you have questions.
We have faith that the effects of the Coronavirus will subside and that things will become more normalized as time passes. Regardless of the pandemic, Orion is continuing to help our clients like never before help borrowers. We’re here for you!