The Consumer Finance Protection Bureau just released its Fall Supervisory Bulletin. It is the first bulletin released since the new Mortgage Servicing rules went into effect on January, 10. The CFPB in speeches, updated communications and in its Flagstar enforcement action has been consistent with the themes of – “Consumer Protection FIRST,” especially in sensitive processes like Loan Transfers and Loan Modifications. Here’s what you need to know:
According to a source at Fiserv, what is required to comply is “documenting the documentation and documents” to show evidence of compliance to the all of the servicing rules. This Bulletin is especially meaningful for its consistency with prior themes and its clear statements that bring clarity on what Examiners find acceptable practices in some of the grayer rules areas. And what the Examiners point out as flagrantly non-compliant findings. Here are some standout items that a source at Fiserv says are of particular note:
Supervisory observations – Good News!
Anyone in the Mortgage Servicing Industry knows that non-bank servicers have been under a heightened level of scrutiny. The Supervisory observations actually have good news regarding what they have found as they have examined these Servicers and point out what they like to see- increased compliance resources (FTE’s & technology), organizations structured to respond to compliance needs, active board level review and related to compliance and self-remediation. These CFPB statements are good news for the industry and indicate that the Bureau is noticing that we ARE taking the CFPB rules, exams and requirements seriously and making them part of our servicing culture.
New Mortgage Servicing Rules – Good News and Bad News
First, The Good News– The initial focus in the bulletin on the “New mortgage servicing rules” section indicate that we, as an industry, have made a reasonable first impression on our work related to Policies and Procedures. The CFPB also indicates what they find acceptable, clearly documented policies and procedures and intelligent ways that loan level information can be accessed and provided accurately to the right people. The examiners must see that current Policies and Procedures clearly document, who can access, what they access, when they access and where the access loan level documentation and data resides AND report on all of it. None of this is new info to our Servicing world. With the Bulletin, it is helpful to see in writing what level of detail is expected and that level is very deep.
Now, The Bad News– the second part of this section indicates that policies and procedures related to third party service providers need additional attention in the industry. What is particularly noteworthy is that the CFPB clearly expects that you, as the Servicer, own this relationship and are expected to know even more about the overall process than the service actual provider. The Bulletin indicates the servicer must have detailed Policies and Procedures about oversight, the third party process(es) that was outsourced and that there is documented policy and conduct of audits to your standards. This bulletin item is a “two for one” notice that they expect detailed policies and procedures for ALL process not just in-house ones and that a “robust and regular” third party service provider audit program is not optional.
Loss mitigation – Watch out!
We all know that loss-mit must be done right, documented in extreme detail and likely to be the most sensitive area for review. The Flagstar enforcement action and the Bulletin continue this theme into 2015. This Bulletin section goes directly into critical findings where borrowers (Consumers) were harmed by lenders who practiced unclear and, ultimately, self-serving and deceptive practices. When this is the case these Servicers have earned their enforcement action and must deal with their consequences.
As a takeaway for honest, diligent servicers who do loss-mitigation, the way to avoid the appearance of any “evil” is by maintaining ALL documentation and records about completed applications, ALL client exchanges and ensuring that the time in processes are recorded and associated with the modification documentation involved. This extreme level of documentation, data aggregation and reporting is not an easy task for people or for the typical technology involved. But it is the evidence of compliance that will keep us out of trouble.
We Have Industry Answers – Good News!
It’s becoming clear as we parse this Bulletin, previous Bulletins and even review the original rules in the light of time that the CFPB expects that we, as an industry, accept their oversight role and invest time in skilled people and invest dollars in technology. This is the combination that hardens processes and reduces risks of non-compliance. This requires an industry standard and a technology platform to support it. Good News, a standard “evidence of compliance structure” for the loan record is well under way within MISMO and the technology to support this effort is already available and deployed in the market.
Even Better News, Both MISMO and the Fiserv LoanComplete team are aware that the structure and the technology must augment a servicers current platform and cannot be “rip & replace” of a servicing system or a imaging system. In servicing, our inustry’s end-state vision must be the ability to produce a single (or many) loan records that clearly demonstrate the documentation, dates, versions, checks, audits and reviews that prove your job was completed accurately and by the book.
As adoption of this technology and industry standards accelerates the CFPB will see more and more of what it expects to see in 2015.
About The Author
Tony Garritano is chairman and founder at PROGRESS in Lending Association. As a speaker Tony has worked hard to inform executives about how technology should be a tool used to further business objectives. For over 10 years he has worked as a journalist, researcher and speaker in the mortgage technology space. Starting this association was the next step for someone like Tony, who has dedicated his career to providing mortgage executives with the information needed to make informed technology decisions. He can be reached via e-mail at firstname.lastname@example.org.