FINTECH LENDERS MISSED THE MORTGAGE CRISIS
And all the important lessons.
By Carissa Robb
There’s no manual for unwinding a global crisis. As we brace for the unprecedented impact of COVID-19 on the economy, larger banks are dusting off playbooks from government furloughs and hurricane relief programs. It’s a well-intended, one-size fits most rush to offer assistance. The long term play will be a challenge.
When push came to shove in 2008,
the industry was largely underprepared. Delinquency was low.
Homeowners were cashing out on equity for immediate gratification, and in some cases, deferring payments and a true understanding of affordability. The rug was pulled out, and homeowners fell hard.
Interest-only payments expired. Lines of credit were shut down. Adjustable rates caused payment shock across the country. Homes became unaffordable. Customers and bankers alike were in search of a roadmap to fix it fast, and it didn’t exist.
Collection calls skyrocketed. Inbound call centers were inundated and understaffed. Long term solutions were not yet developed. Regulations to protect homeowners and slow the pace of foreclosures forced prioritization of real-estate relief options. And long after the first flare, banks scrambled to stand up and staff brand new Loss Mitigation teams and highly manual modification programs.
Pages of aged documentation emailed and faxed to overwhelmed underwriters, only to sit in queues and expire, prompting more paper and stalling the timeline for relief. It wasn’t intentional. The industry was simply underprepared.
Enter 2020. We’ve already seen the first flare.
And the long term play will be a challenge.
We’re looking at a host of recurring problems: overextension, predatory and volatile repayment terms, lack of innovation and automation in back office functions. But this time, the debt is something folks will walk away from much more quickly than their homes. A new set of borrowers have cashed out for immediate gratification. And, once again, deferred payments and a true understanding of affordability.
The industry is underprepared.
What’s more concerning, the bench has changed. With the entry and domination of consumer lending by fintech lenders, many of the new players responsible are seeing this for the first time. Fintechs have spent billions to break down barriers for accessible credit and provided much needed self-service options for consumers. But many are inexperienced with the operational fallouts and regulatory pressure for debt relief in highly stressed markets.
In preparation for the looming recession (the impacts of which have been accelerated by COVID-19), call centers are launching massive hiring campaigns, hiring third party agencies for staff augmentation to keep up with demand: throwing costly FTE at the problem. Companies are packaging recession preparedness packages advertising big-data promises for improved customer insights and performance indicators. Dig deeper to find that the indicators are mostly lagging and the output of the analysis gets pushed back into the age-old strategy of who to call and when to call.
The rug is being pulled out.
We won’t have months to figure out how to help.
What’s your playbook?
(We can help.)
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