Teamwork Needed On Servicing Rules
National servicing standards “are clearly doable,” according to New York State banking superintendent Richard Neiman. In a speech at the SourceMedia Mortgage Servicing Conference here last week, Neiman called for a “a renewed level of cooperative federalism.”
He noted that “initial disagreement” expressed by some state attorneys general about the first draft of a servicing standards document indicates it will be a challenge to develop a national standard.
But if the industry focuses on lessons learned from creating subservicing standards, he said, “This is doable. There are enough models out there, there’s enough engagement with industry and customer groups…We know the areas we are going to address.”
The regulator said that among other things, “Performance data should be required to be reported at the federal level and in a standardized format as part of any comprehensive set of national minimum standards for servicers.”
He likened it to originators and their HMDA reporting obligations where a unique identifier is issued to track mortgages through the life of the loan.
Neiman urged servicers that are “on the day-to-day frontlines” to assist efforts to create a standard.
“I would strongly encourage industry members not to wait for these rules to make the changes that we need today.”
Servicers must make “the positive changes necessary” and bring the needs of borrowers, investors and their companies into balance, instead of waiting for the regulators to set up best practices for them.
The future of mortgage servicing depends on how well the industry and the regulators work together to modernize the marketplace so it moves towards excellence, he said.
In his view that move entails process and operational changes that ensure servicing companies are in compliance with existing regulations, along with servicers’ efforts to address “standards yet to be formed.“
He called on servicers to honor a request for comments on the new Frank-Dodd Act risk retention proposal requirements under the Qualified Residential Mortgage standards, “particularly the sections starting on page 133,” to reassess some of the basic principles outlined there such as modifying loans that are securitized.
Agreeing on what consists best industry practices however will remain a challenge.
Many insiders see recent changes in foreclosure regulations in New York as extremely stringent on lender servicers. But Neiman, who is well aware of such opinions, presented a few data to support his claim that New York is an example of how to be proactive.
Since 2009 when the state changed its 2008 law to address the crisis by applying to traditional mortgages protections initially designed for subprime and high cost loans all New York homeowners are entitled to receive a pre foreclosures notice and are notified of their workout options following a mandatory judicial settlement conference. Before this requirement went into effect, Neiman said, 90% of the workout options went into foreclosure because the homeowner failed to appear at the proceeding. Since the law went into effect that default rate dropped to 20%.