Compliance Comes Down to Communication in Servicing
Old hands in the mortgage business know the three C's of lending (collateral, capacity, character). Maybe it's time to talk about the three C's of servicing – communication, compliance, and courtesy.
The first two go hand in hand. The Consumer Financial Protection Bureau's new servicing rules are meant to make sure a servicer's daily activities are transparent to customers. Effective communication with borrowers is therefore critical to compliance.
Then there's courtesy. All servicers should be “treating customers like their mother,” said Laurie Maggiano, program manager of servicing and secondary markets at CFPB, on a panel at the Mortgage Bankers Association servicing conference in Orlando this week.
In general, having all the information about a borrower’s loan status readily available and being able to prove that a servicer made an effort to reach out to a distressed homeowner are key for compliance.
“A borrower needs to know why they were denied a loan modification and what they can do to improve this,” Robert Caruso, executive vice president of servicing at the technology vendor ServiceLink, said at the conference.
Caruso added that servicers have to start recording what they do each day to remain compliant. Additionally, it is important to show the rationale for why certain phone calls are not being made, such as if a borrower is in bankruptcy.
For servicers, some of the most difficult regulations to follow concern language in denial letters, periodic billing statements and initial notices of a rate change on an adjustable mortgage (which must be sent 210 and 240 days before the first payment is due).
Credit rating agencies are also looking at servicers' timelines before grading their performance.
“We need evidence that a servicer is complying with the rules,” said Richard Koch, a senior vice president at Morningstar Credit Ratings. “A servicer should also be careful not to inherit another company’s problem loans when conducting large servicing acquisitions, including legacy portfolios.”
The new servicing rules have been in effect for a little more than a month, and borrowers and servicers are still adjusting to the changes.
“People need time to work out the kinks in their system,” said Tim Rood, a partner at Collingwood Group, a consulting firm in Washington, at the MBA show. “We shouldn’t see any new rules for the next 18 months," as the industry needs a “time of healing.”