Over the past year, PPP loans, refinances, and regulatory uncertainty are all factors that put increased pressure and heavier workloads on financial institutions, often pushing real estate tax tracking to a lower priority. Unfortunately, there is also a wave of mortgage delinquencies coming due to the economic struggles of the past year, which caused some borrowers to avoid paying property taxes instead of missing mortgage payments.
Before 2020, mortgage delinquencies were at an all-time low of 3.77%, but they jumped up significantly when the pandemic hit. Delinquency rates typically mirror unemployment rates, and throughout 2020, they were both significantly higher than they were between 2008–2009.
In our recent webinar, Mark Daniels, SVP of Sales, Marketing and Account Management at Info-Pro discussed these trends, property tax nuances across the U.S., and what you can do to ensure your borrowers and your institution don’t fall victim to delinquent property taxes.
Current mortgage and property tax delinquency trends
Although mortgage delinquency rates have fallen back below 6% for the first time since March 2020, loans considered ‘seriously delinquent’ are five times that of pre-pandemic levels. Even with the extensions of foreclosure and forbearance moratoriums, it’s estimated that 1.8 million mortgages will be seriously delinquent at the end of the extensions.
Over the next two to three years, institutions are going to face greater risk as delinquencies remain higher than they were pre-pandemic. The extension programs will likely wind down in 2021, and financial institutions will experience a continuous heavy workload due to PPP loans, skyrocketing refinancing rates, and a strong focus on tracking delinquency rates.
To combat all of this, Info-Pro had to pivot quickly and seamlessly to a remote work environment while continuing to provide our clients the exceptional customer service and reliability we always have, especially with our delinquent tax tracking service.
Commercial portfolios are often not monitored as closely as other portfolio types for property tax delinquencies, and when they are monitored, communication to customers is done via a phone call from a loan officer rather than through an automated system, which is time-consuming and difficult to scale.
Commercial properties were hit hardest by the pandemic—small businesses have struggled to stay afloat, and a 2020 study showed that 44% of small businesses had more than $100,000 in debt, up from 13% in 2019. If you’re not tracking your commercial properties, the potential impacts and losses that could result from this are huge.
Future delinquency trends to prepare for
Commercial property delinquency rates have improved in the new year, but there are indications that the improvement could be showing signs of reversal. Institutions need to be on top of monitoring these trends to protect themselves over the next few years.
Plus, tax and mortgage delinquency go hand-in-hand, so preparing for people to pay their mortgage but fall behind on property taxes is essential, especially in times like this.
Changes with the new administration
We expect to see an increase in the regulatory burden placed on financial institutions: the Consumer Financial Protection Bureau (CFPB) is looking to ramp up its regulatory activities later on in the year. With Rohit Chopra coming on as the Director of the CFPB, we can expect that the bureau’s priorities and enforcement activity will look similar to that of the Obama administration.
The CFPB is expected to grow in size and address items such as credit reporting regulation, debt collection practices, and limiting overdraft fees.
As 2021 continues, we expect to see increased scrutiny on mortgage portfolios. Financial institutions will need to demonstrate how they are controlling and handling risks and threats throughout their organization.
We have also spoken with financial institutions going through audits, and auditors have been requesting a more standardized process for tax monitoring/hiring on a vendor. Though this is not a hard and fast rule yet; it’s something to keep in mind for the future.
Variable property taxes across the U.S.
Property tax laws and procedures vary widely from state-to-state and from one county to the next. While some states only have county-level tax collection, others involve municipalities which add a new layer of complexity and risk to the tax process. Going in even deeper, there are muni-level states that have multiple separate taxing districts for a given real estate property. Many nuances go into this and keeping track of it all and minimizing risk can be overwhelming.
Nuances across states
A few examples of nuances across states include:
- Some states require installments and some don’t
- The number of payments varies
- Discount dates may apply
- Out-of-state lenders must follow other lesser-known nuances
Researching and tracking all of this correctly is vital for protecting your institution against tax delinquency risk.
If your mortgage and tax portfolio crosses state lines, many new layers of complexity get added onto your plate with every different location you work with. Instead of adding all of this research, knowledge, and work onto your team’s docket, it’s a good idea to consider working with a third-party provider that can save you that massive headache. Info-Pro is constantly updating tax information from all over the country to inform and minimize tax risk for our clients.
Mark discusses eye-opening and specific state-to-state nuances in the webinar.
Tax sales/tax-lien sales
Tax sales allow a ‘tax buyer’ to bid on and purchase the delinquent taxes for a given property after a set amount of time has passed. Once the taxes have been sold to the tax buyer, the mortgage holder will have to pay the tax buyer what they owe in delinquent taxes, plus interest and penalty. If the mortgage holder fails to do so, the tax buyer can take ownership of the property.
This poses a serious risk to financial institutions because if the tax sale occurs and is not caught or remedied in time, the institution can lose that property.
Real estate tax monitoring services
Info-Pro exists to take the burden of real estate tax tracking, among other things, off of financial institutions by:
- Researching and documenting nuances across the country for you to reference in an easy-to-use Tax Agency Database
- Providing a platform to track loans and parcels that shows:
- Tax amount due
- Tax amount paid
- Changes in the property’s tax ID, owner name, and property address
- Notes regarding parcels being split/retired
- Delinquency amount with interest and penalty
- Flags for ‘sold taxes’
Staying on top of all of this can be very difficult for financial institutions to do in-house and trying to do so can lead to increased risk due to oversight. Plus, financial institutions are facing more challenges than ever before, which is why outsourcing truly gives you an advantage. As regulatory burdens increase, you must have a robust method for handling real estate tax monitoring to ensure compliance.
Info-Pro collects and integrates data from the 26,000+ property tax authorities nationwide into a user-friendly software platform, enabling financial institutions to easily identify property tax delinquencies and pay escrow taxes. To learn more, contact us today.