Due to the roll-out of new regulations and recent supervision reports, servicers are facing more regulatory challenges than at any time in recent memory. While fear is a common reaction to the number and scope of the new regulations that the industry has absorbed, servicers can manage the changes with a combination of education, efficient technology and process updates.
One of the primary ways technology can assist servicers is in providing data integrity, automated processes, and tools for customization to assist in the servicing of loans and reporting of critical information to borrowers and investors.
The use of appropriate technology also eliminates the need to rely on outsourcing the servicing process, since servicers can perform the necessary functions in-house, allowing them to maintain the company’s high caliber of service to its borrowers. This also removes the added labor required to consistently monitor the performance of an outsourced provider, while simultaneously simplifying the compliance process.
Some of the most significant regulatory changes occurred in January, when new rules related to the Real Estate Settlement Procedures Act and the Truth in Lending Act went into effect. In general, the updates to the RESPA rule mandate that loan servicers initiate early intervention and maintain stronger continuity of contact with delinquent borrowers, in addition to complying with loss mitigation procedures. The TILA changes require specific borrower communications regarding interest rate changes, as well as prompt crediting of payments and the issuance of periodic statements.
These changes address problems and concerns the CFPB uncovered during supervisory audits that began in July 2011. Among the most common violations, as noted in their supervisory work completed in October 2013, were:
- Unfair practices with servicing transfers by not honoring existing modification agreements following a transfer of servicing rights.
- Forcing borrowers to waive existing claims in order to proceed with loan modifications.
- Poor payment processing practices.
- Misreporting information to consumer reporting agencies, causing a negative impact on the borrower’s ability to obtain credit.
By familiarizing themselves with the issues that the CFPB is primarily focused on, servicers can ensure that they pay particular attention to how they manage such concerns by implementing updated compliance policies.
Strong data integrity, accurate documentation and clear reporting are some of the key components in regard to maintaining compliance with the new RESPA and TILA regulations. Ideally, a servicer will utilize a servicing system that is integrated into the lender’s loan origination system, as to drastically decrease manual data entry between third-party mortgage systems and core platforms. By having greater access to all loan data, in addition to enhanced capabilities for analysis, servicers can ensure that they are able to provide the necessary level of detail for auditors and investors.
Additionally, servicing platforms should be updated with the latest regulatory document forms or provide servicers with the ability to create custom documents. The software database should support the necessary fields to generate statement and billing documents for compliance under the new guidelines.
While the changing compliance landscape has presented servicers with new regulatory challenges, there are a growing number of practices available to simplify compliance management. By staying current with changes, implementing an efficient in-house servicing solution, and developing a unique compliance strategy, servicers can significantly decrease the potential for compliance issues and avoid costly fines from government agencies.
Susan Graham is president and chief operating officer of Financial Industry Computer Systems Inc.