Safe Origination During Government Shutdowns
We all know that EVEN IF this shutdown ends tomorrow, it won't be the last one of our lifetimes.
Extended lapses in federal funding create obstacles to origination if you don't have a plan. Here's a few tips on how to avoid making a critical mistake.
I’ll spare you the background. We’re all aware that any extended government shutdown creates cascading issues in an industry so intertwined with federal funding. While it’s entirely possible this article is irrelevant by the time you see it, I want to take a few minutes to discuss preparing for shutdowns—specifically how we as community bankers and lenders can take advantage of the uncertainty present today.
1. Assess the Risks
As with any strategic planning process, risk assessment is a critical first step. Consider the internal and external stakeholders in both the mortgage process and the government shutdown context.
Always remember that consumers are hurt in so many ways when government programs shut down. This applies to your servicing customers (more on this below) and your prospects.
Perhaps most importantly, consider the unique logistical challenges of creating, implementing, documenting, and executing a procedure—in real time while the pipeline keeps flowing—for a circumstance that could end any minute. Do you know how will you handle the complicated tracking requirements in Fannie LL-2018-06 for loans closed without full documentation due to the shutdown? If not, those loans may end up in portfolio.
2. Monitor and Understand Guidance
Listen to your industry groups. Listen often, the cycle of guidance in emergency situations is much more abbreviated. Whichever source is your favorite, make it your home page until the government is open. You’ll need to see and react to any guidance quickly.
How will you handle flood insurance? VOE on government employees? What about the IRS? Some of these questions are answered by available guidance already—if you don’t know which ones then you’re behind the game.
3. Create Fluid Processes to Respond in Real Time
If the shutdown implications are complicated for us to predict and assess, imagine how the average borrower feels. The risk of reputational harm here is unfairly high for lenders, but the fact of the matter is borrowers hold origination issues against the lender—even (and maybe particularly) when they are out of the lender’s control.
Remember, everyone is feeling these pressures, not just your institution. While others are running around trying to figure out how to get a VOE for a federal employee, you’re cruising along and closing deals.
Understand that you need a person, team, workflow, or something which can be dedicated to solving these ad hoc issues. Your customers will thank you.
4. Tell your Customers about Your Efforts
This week, FHA released a letter to mortgagees and lenders with regard to loss mitigation options for borrowers impacted by the shutdown. The guidance “remind[s lenders] of their ongoing obligation to offer special forbearance to borrowers experiencing loss of income.” FHA also asks, without requiring, that institutions waive late fees and suspend credit reporting on borrowers who are impacted.
Buy yourself some good will, and let your customers know that you’re here to work with them if they are impacted. A simple tweet, statement on your homepage, or email can let customers know.
It’s unlikely that you have a significant percentage of borrowers in these circumstances, so I wouldn’t expect a large loss in fee income. But even if there is, you are buying goodwill.
Remind your neighbors (and customers) that when tough times hit, you’re there to work with them—and they’ll remind their friends and neighbors that you care.
Is this Helpful?
We advise dozens of clients on one-off questions and ongoing projects a week, and often the questions our clients pose to us end up in the newsletter, as is the case with this blog. The thinking is, if one client had the question, others may as well. I hope some of you found this useful, interesting, or maybe even mildly entertaining.
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