No Escape from Regulation in 2014 but Some Benefits Arise
They include new vendor guidelines expected to cause a dramatic increase of risk management outsourcing; greater interest in RMBS and CMBS transactions but controlled supply; managing the processes and improving operations to comply with the requirement to assign a human single point of contact delinquent borrowers; longer processing time for loan applications as originators and especially servicers become more accustom to regulations set by the CFPB. Regulatory compliance strides however, will simultaneously generate benefits starting with a myriad of new oversight and embedded tools; the need to update processes and adhere to more efficient loss mitigation timeframes; or offering a user-friendly experience for customers, which will be crucial in 2014. Here is what they said:
Brent Taggart, SVP at Green River Capital:
Growth in the REO-to-Rental securitization market is one of the expectations for 2014. One major deal was completed (Deutsche Bank and Invitation Homes), and it was received very well. Other aggregators and lenders have inquired about doing their own securitizations and we would expect that it will continue to grow as an asset class.
The continued growth of interest in short sales is another and it is attributed to the increase of borrower outreach and right-party contact. We have achieved that for those clients who have been generous in providing incentives for borrowers enabling them to seek alternatives to foreclosure. In turn, our agents have been successful in listing the properties and getting great offers.
Sanjeev Dahiwadkar, CEO and president of IndiSoft:
Compliance costs will make it more challenging for companies to effectively manage operational expenses. This is primarily due to the high cost of implementing new processes and technology that is necessary to comply with new regulations. Compliance efforts, coupled with a budding purchase market, a waning refinance market and the slow growth in the overall economy, will make 2014 a transitional year for the entire mortgage industry.
In addition, mortgage servicing, which historically has not been as highly regulated as mortgage origination, will need to become more accustomed to regulations set by the CFPB. This could result in longer processing time for loan applications and fewer new loans.
Barry Hays, Co-Founder and Senior Vice President of TeleVoice:
In 2014, servicers will face challenges in how to manage the processes and improve operations to comply with the requirement to assign a human single point of contact delinquent borrowers can interact with about their loan modification requests. All servicers will face regulatory and operational challenges, but even more so servicers with as few as 5,000 loans who lack the staff, technology or processes to meet borrower demands.
Efforts to meet the SPOC demand and to offer a user-friendly experience for customers will be crucial in 2014. The industry will see many servicers leverage customizable technology in order to meet their specified number of inbound and outbound call campaigns.
Ed Fay, CEO of Fay Servicing:
In 2014 we'll see a greater integration of origination and servicing strategies. In January when the new CFPB rules take effect lenders will weigh the needs of residential loan borrowers against QM and non-QM lending guidelines. As they adjust their product offerings, we expect originators will increasingly tailor their servicing strategies to appropriately serve their evolving customer bases.
The CFPB's new regulations will meaningfully affect the business models of many lenders and servicers. Compliance costs and the risks associated with being in the mortgage space are drastically changing. Generally, those with a borrower-centric culture will have an advantage but risk control and execution on new policies and procedures will be valued at a premium in 2014.
Roger Beane, CEO of LRES:
Along with the CFPB requirements, the OCC is showing more teeth in 2014 in the way it enforces new vendor guidelines. A paper trail is now expected all the way from the initial transaction with the lender/servicer to all the vendors they are using to ensure OCC compliance, which will demand significant vendor oversight, additional investment in technology and a dramatic increase in external risk management outsourcing services throughout the industry.
The market is showing greater interest in RMBS and CMBS transactions despite the higher interest rate environment. But an expected more than 30% drop in originations will make it very difficult to find product to securitize. Demand is trending upward while supply is anticipated to be down, so it is important to keep the speed of transactions at a consumer-safe rate and not at the astronomical rate experienced in 2001-2006.
Todd Mobraten, COO and president of USRES/RES.NET:
Our executive customers are under great scrutiny by the Consumer Financial Protection Bureau to ensure servicing operations and third party supply chains are compliant. Servicers will be held accountable for negligence on the part of their vendors.
Executives will expect a myriad of oversight and embedded tools from their technology partners, for they typically provide the data set of suppliers from which to choose. At a minimum, we can expect that the following items will need to be in play: verification of licensing and insurance; proof of professional services, including samples; references; verification of ethnicity, sex, age, and geographical location; and quality control tools and validation.