Effective October 19, servicers must comply with recently finalized mortgage servicing rules, which include an updated set of regulations. Among other things, the regulation has clarified the requirements regarding the transfer of mortgage servicing rights (MSRs), particularly as they apply to borrowers who are in default. The regulatory agency is requiring that these distressed loan files be transferred “seamlessly.” In other words, the receiving servicer is required to pick up right where the selling servicer left off in terms of the loss mitigation process so the distressed borrower has a smooth experience during transfer. Easy enough, right? Not really.
It means a receiving servicer, in addition to determining how many loan files in a transaction are actively in loss mitigation, must also have access to a complete detailed history of what has been offered to the defaulted borrowers to date in order to determine where they are in the loss mitigation process.
Central to achieving this seamless experience is the accurate transfer of loan-level data from one mortgage servicing system to another. Today, providers of mortgage servicing technology have made great strides in developing reliable integrations or bridges between systems allowing for the transfer of MSR data. Although transfers between the major servicing platforms are generally fast and reliable due to their out-of-the-box capabilities, transfers between newer systems and older, legacy systems — or homegrown platforms — can be more error-prone because these integrations are harder to carry out.
This, of course, is on top of the vast array of discrepancies that can exist within the loan files — from missing data fields, missing data or documents to misnamed data fields — often depending on the vintage of the loans. Sometimes there’s data included that simply can’t be correlated with anything else in the file. And practically every servicer has a different way of addressing such issues. For these reasons, the first transfer with a partner is often the messiest and most challenging. However, if done correctly, each subsequent transfer becomes easier as issues are smoothed out.
Although the MSR transfer process is still far from standardized, today there are advanced technology tools that ensure fast and accurate transfer of data between systems. Using data, analytics and automation, these tools help servicers quickly go through loan portfolios and identify potential compliance problems ahead of time.
At BSI Financial, we developed Asset360, an analytics engine that sits on top of our vast database of loan performance data. It delivers a complete, data-driven life-of-loan system that, in addition to enhancing the MSR transfer and loan onboard process, enables ongoing, comprehensive monitoring of all loans for performance and compliance.
We’ve found that by using a mix of data, analytics and automation, we not only have the ability to monitor all loans for potential performance, compliance and documentation issues, we can also achieve faster data transfer speed and accuracy during MSR transfers. As these tools continue to develop, they will reduce the need for the antiquated “stare and compare” manual post-transfer reviews.
The servicing rules have, in essence, required servicers to create complete “life of loan” databases that facilitate a complete audit trail for where that loan has been, who serviced it, and when — basically every detail of how the loan has been serviced to date. The problem, of course, is that not every servicer keeps the same data on every loan. That means sometimes when loans are transferred, the information the successor servicer receives is incomplete. Being able to identify these loans quickly and take action on them during the transfer process is essential.
But data and analytics have applications in the loan transfer process that go well beyond just finding which loans are in default and ensuring the loss mitigation remains intact “in flight.” To better understand how data and analytics can aid in the transfer process, including how they can improve accuracy and efficiency; let’s take a look at the various stages and where they come into play.
At our firm, once we schedule a transfer, our coordinator will setup a kickoff call between the counterparties to discuss deliverables, timelines, etc. We know that boarding loans has instant Karma tied to it — one day a servicer is on one side the deal, the next day it’s on the other side — so, having an open channel of communication and scheduled meetings ensures a good final experience.
During the initial meeting, we typically request preliminary data from the seller to be delivered to us 30 days prior to the transfer. We run this preliminary data through Asset360 and analyze it as if it were final data. In addition to running rigorous data checks, we also make sure that we have all the data, that it is formatted properly, and that it is logical. Once the preliminary data has been received, our mapping team creates the upload sheet, and completes the Balance & Reconciliation against the prior servicer’s data.
The mapping between core systems — and how accurately it is done — is a key factor when trying to achieve fast and reliable transfer of loan data. We make sure every transaction gets a template so that when we conduct a new deal, we are building on the knowledge gained from the last one. Inevitably, there are minor changes in systems and in the terminology codes that are used and we’ve found that using a template that is continuously updated makes it easier to track and make small changes.
A word about communication
At this point, it should be mentioned that communication is a critically important factor in achieving fast and accurate MSR deals these days. Communication between the buyer and the seller — particularly after the deal is closed — is absolutely critical. The two teams involved must be able to communicate readily and easily, in case questions regarding discrepancies in loan files arise. The new data and analytics tools, such as Asset360, make this communication much more targeted and specific, because it allows teams to identify problems and drill down into the related data quickly.
Not only is communication between teams an important aspect of the MSR transfer process, it is equally as critical that servicers stay abreast of the latest regulatory changes. We communicate weekly with our legal team to check the pulse of regulatory changes, so those changes get written into code that ensures compliance.
During the verification stage, quality assurance should be reviewed to determine whether the mapping needs to be updated.
We require final data and Balance & Reconciliation to be sent to us within five days of service transfer. At that point, the mapping team will review the final data and create the final boarding templates. After the templates are reviewed, the loans are ready to be boarded to the production region.
Once loans are active on the system, a notification is sent out to the company to advise the same and a QA process is performed on the pool. Welcome/DVN letters are mailed within 15 days of transfer.
Post mortem quality assurance
Following transfer, I recommend a post-mortem call be conducted with the conversions team to review all issues that arose during the transfer. Comments should be logged and tracked for future reference. I have found it is very helpful to capture what went well, what didn’t, and then institutionalize that knowledge so we’re more efficient the next time we transact with that same servicer.
Today, servicers need to stay focused on getting ahead of regulatory guidance. We’ve found that the most effective way to do that is to build software to house the logic needed to identify high risk loans. In addition, boarding data before loading the loan, defining logical and illogical conditions, running data through conditions checks and communicating seamlessly with the prior servicer and the borrower are critical aspects of any successful loan transfer program.
Today servicing technology can quickly quantify risk points and carry out logical condition checks to perfect data that doesn’t make sense. By focusing on compliance and seamless boarding from one platform to another, MSR transfers can be completed faster and with a smaller error rate.
At BSI Financial, we’re pleased that the technology we developed to handle these challenges is getting its day to shine.
About The Author
Jared Walsh is Senior Vice President of Analytics & Conversions. Jared has more than 15 years of experience in the residential mortgage industry with a focus on business intelligence, process improvement, credit risk management, and operations management. He was integral in establishing the cloud based IT infrastructure that allows BSI Financial to manage data and analytics. In creating the control environment, he leads efforts to create and manage exception reporting, operational management tools, data analytics, and forecasting tools. Jared holds a Finance degree from California State University, Long Beach.