How Prepared Are You for a Disaster?

Despite healthy profits, mortgage servicers continue to face new challenges, from helping borrowers exit forbearance plans to staying compliant with state and federal regulators. But there is one type of challenge that is particularly difficult to prepare for, because it’s rarely seen coming.

We’re talking here about natural disasters, which have been growing in number and severity across the country for several years. From wildfires in the Western states, to winter storms throughout the Midwest and Northeast, to hurricanes, flooding and even tornadoes in the Southeast, there is virtually no place in the U.S. that has not been affected in some way by a catastrophe.

But as difficult as it is to prepare for disaster, it’s not impossible—if you have the right resources in place.

Reason for Concern

When it comes to natural disasters, the numbers are frightening.

According to Rebuild by Design, a climate change research nonprofit launched by the U.S. Department of Housing and Urban Development, an astounding 90% of U.S. counties experienced a weather disaster between 2011 and 2021. Meanwhile, five-states—California, Mississippi, Oklahoma, Iowa and Tennessee—each experienced at least 20 disasters, from storms, wildfires, floods and landslides.

Hurricane Ian flooded houses in Florida residential area. Natural disaster and its consequences.

In 2020, as the number of disasters continued to grow, the Commodity Futures Trading Commission issued a report that found climate change “poses a major risk to the stability of the U.S. financial system” and identified mortgages and mortgage-backed securities as two asset classes that are particularly exposed. In fact, the CFTC found roughly half of all mortgaged properties were at risk of flooding yet were located outside current flood zones, which means they are more likely to default.

This past year, the nation experienced record number of disasters that included Hurricane Ian, which caused at least 157 fatalities and damages estimated to be more than over $50 billion. 2022 was also the most devastating year on record for wildfires, with more than 7 million acres of land burned, according to the National Interagency Fire Center.

Understanding the Responsibility

Natural disasters impact mortgage servicers in several ways. First, and most obvious, they affect loan portfolios with assets concentrated in disaster-prone areas. Servicers also risk significant losses when there are multiple borrower defaults stemming from a single disaster, especially when damages exceed the amount of insurance coverage.

Another challenge is making sure every borrower who has been impacted by a disaster receives the assistance they need. This can quickly prove overwhelming when dozens or even hundreds of borrowers all need help at once. At the same time, servicers must also deal with a growing number of new policies and guidance related to natural disasters, which can greatly impact their ability to serve borrowers in times of crisis.

Finally, servicers also face business continuity challenges when disasters affect their own buildings, operations and staff. Yet sadly, there are many mortgage servicers that do not have adequate plans in place to keep operations from being disrupted by a disaster.

The Key to Disaster Preparation

Obviously, controlling Mother Nature is impossible—but there are ways for mortgage servicers to reduce the impact of her wrath. And a key ingredient for a proper disaster preparation kit is technology.

For instance, when a hurricane or wildfire strikes, a servicer’s platform should alert them when the incident affects certain loans on its portfolio. If borrowers fall behind on payments, the platform should also provide guidance that helps servicers meet federal and state requirements for reporting delinquencies. And it should provide loan tracking capabilities for agency and investor reporting as well.

There aren’t many servicing platforms that do these things very well, but MCC Mortgage Solutions’ platform is one of them. In fact, our technology lets servicers configure which loans to monitor depending on where tragedy strikes. Plus, it includes automated monitoring that offers servicers the flexibility to track any event—including a disaster—as well as any procedure based on their own defined criteria.

MCC Mortgage Solutions also runs data centers on opposite sides of the U.S., which allows our clients to seamlessly transition and replicate data to an alternate location if a disaster strikes their base of operations. This means our clients’ data—and more importantly, the data of their customers—is protected at all times.

If you’re like to learn more about how MCC Mortgage Solutions can help your organization better prepare for the unknown, give us a call at 248-350-9290 or drop a note to: info@mccmortgagesolutions.com. We’re always ready to help.

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