By Richard Pike, sales and marketing director of Phoebus Software Ltd
The start of the year seems like an age ago. As a person whose life is spent meeting and interacting with people, having worked from home since March, I’d be lying to say it’s not been a struggle on occasion, but I sit here writing this article feeling fit and well and thinking of those not nearly as lucky as I have been. I am sure many reading this must feel the same.
Thinking back, everybody hit the start of 2020 extremely positively, with many intermediaries and lenders reporting high volumes and being ahead of targets. Even when news started to get more serious about what the COVID-19 outlook could be, it was still very surreal. Six nations games continued, the Cheltenham Festival carried on and hospitality was packed as usual (guilty as charged mi’ Lord!).
The furlough scheme started on 23rd March and marked the start of a wealth of almost “socialist” policies from a newly elected Conservative Government. What was next? Enforced payment holiday schemes with no questions asked? A stamp duty holiday?
Mortgage funding became an issue for a time, and there was much rhetoric between some intermediaries and wholesale funded originators. To me, it felt like some had short memories. The fact that specialist lenders have supported those “interesting” cases over the years when mainstream lenders didn’t want to know seemed to have been forgotten. But funding came back and news of successful securitisations gave confidence back to this essential part of the market.
And to 2021.
I think we’ll be into the second half of the year by the time any resemblance of normality comes back to our working lives. At the time of writing, there are more areas moving to Tier 3 from Tier 2 in the UK and, across the pond, after the US’s first eight million COVID cases took eight months to occur, the last eight million cases have just taken just eight weeks. Truly frightening stats. There is still a long way to go even with the fantastic work in creating the vaccine that hopefully will bring long-term protection to the nation.
Furlough and payment holidays are still with us. The next major milestone is the end of the stamp duty holiday, and I think there is a possibility of a decent dip in property values in Q2.
Unemployment is expected to rise to 2.6 million – I think this figure is light. This means arrears will increase. In the first quarter, if they aren’t already, lenders and servicers will be recruiting and retaining staff to work in collections departments. From an originations perspective, this will severely test lenders attitude to risk.
Looking at Europe, non-performing loan (NPL) levels are already increasing rapidly, and unfortunately, with the Government having to reel back some of the current forbearance measures at some point, some UK books will see the same fate. But in times of rising arrears volumes, this can also provide opportunities for those looking at trading books, and generally speaking, those books with higher NPLs will be available at reduced prices. So I suspect we’ll see an increase in portfolio trades as they will offer significantly discounted book-growth opportunities.
As well as the highly used phrase “I think you are on mute”, “forbearance” is a word that will remain strongly linked to the pandemic. The lending community has, and undoubtedly will be, very flexible to borrowers in hardship moving forward. Unfortunately, I think there is a distinct possibility that advice given and forbearance solutions offered will be looked at in terms of what was right for the borrower at the time. Sound slightly familiar?
It will be vital that, as arrears increase, full records are kept of the reasons why forbearance decisions are made with the justification for doing so and that this has been agreed by the borrower.
This means arrears discussions could almost feels like advised sales, but this area could come back to haunt lenders that are rightly being very flexible, but don’t keep records thoroughly. Let’s not give the claims companies another opportunity to continually call us PLEASE!
Finally, may I wish readers a very Merry Christmas, and here’s to a safe and healthy 2021.