Need to Comply Leads to More Automation

Multiplying federal and state regulations have triggered the issuance of new rules and requirements further down the chain at the local level and are pressuring mortgage banks to find new ways to stay in compliance.

According to some sources, nearly 30 states passed legislation pertaining to the foreclosure process in 2011, making it a critical area of compliance for servicers.

“The sheer amount of new foreclosure-related legislation can be overwhelming for mortgage servicers,” said Jason Marx, vice president and general manager of residential and indirect lending at Wolters Kluwer Financial Services, a provider of audit, risk management and compliance solutions.

Process automation and partnerships are helping servicers ease that burden.

To enable mortgage servicers meet and keep pace with changing regulatory requirements Wolters Kluwer Financial Services enhanced its CompliSource regulatory research tool adding foreclosure compliance summaries.

The updated web-based regulatory research tool for residential and indirect lenders allows users to access practical explanations of state-specific foreclosure laws in all 51 U.S jurisdictions so they remain in compliance with changing regulatory requirements.

CompliSource can be utilized alone or as part of a package such as the Wolters Kluwer Financial Services foreclosure compliance tools that include delivery solutions for notices of default, affidavits and state-registration and regulatory consulting services.

CompliSource can be used as a single source of information and analysis about a number of foreclosure issues. The list includes federal and state level default servicing information for conventional and high-cost loans, loan modification and foreclosure prevention requirements including rights to cure, required notices and documents for preforeclosure and judicial and nonjudicial foreclosures, federal and state service members Civil Relief Act restrictions on foreclosure actions, required notices to tenants, and the judicial and nonjudicial foreclosure process from commencement of an action through deficiency pursuit.

American Home Mortgage Servicing Inc. of Dallas partnered with Compliance Connections, a division of Safeguard Properties, to proactively manage and address potential property management code violation issues for its foreclosure property portfolio.

The Compliance Connections web-based portal is designed to foster a fast two-way communication between mortgage loan servicers and municipalities immediately after property code issues arise. When notices are posted, they are instantly delivered, electronically, eliminating regular mail delays. The automated process helps save time and money to servicers and management companies and at the same time helps preserve property values in the communities they are located.

Through the system, a code enforcement officer can notify the servicer or field services manager to ensure prompt action is taken to keep properties up to code.

Automated technology is the most efficient way to do that, said Rance Halfmann, VP of default operations support at American Home Mortgage Servicing. “If a window is broken at one of our properties or has other violations, we need to know about it so we can take care of it right away.” American Home Mortgage Servicing is one of the nation’s largest mortgage servicers that services a portfolio of nearly $71 billion and represents approximately 374,000 customers.

An immediate benefit, said president of Compliance Connections, Brandon Kirkham, is that the partnership enables the servicer “to reach out to municipalities and code enforcement officials across the country,” which is the best way to expedite and minimize property-related issues.

The Compliance Connections platform enables users—such as to loan servicers, code enforcement officers and other parties involved in the code compliance process—to communicate with each other, upload documents, manage tasks, as well as track and review the status of a code violation through a centralized, secure system.

“Compliance officers have never had a more challenging mandate than they do today,” said Roger Fendelman, the vice president of compliance at Interthinx, an Aurora Hills, Calif.-based firm that specializes in mitigating mortgage fraud, collateral, valuation and regulatory compliance risk.

And that is obvious at industry events. “Attendance at compliance conferences has increased dramatically in the last year as these professionals reach out for guidance,” he said.

Compliance is key to the survival of their business. Failure to comply has resulted in buyback requests, fines, loss of lines of business, and closure of business for many lenders, he argues. “With hundreds of new rules coming down from various agencies this year, occasional conferences are not sufficient.”

Fendelman recently started featuring in a podcast series that focuses on compliance issues. “From the Bar” provides “detailed information and analysis that financial institutions can rely on,” he said. In his podcast he addresses some of the toughest challenges faced by mortgage lenders and servicers as they struggle to keep up with regulatory changes at the federal and state level. (Fendelman’s podcast continues the firm’s legacy in providing online accessible expertise to customers that was initiated by Ann Fulmer’s podcast: “Direct from DC.”)

In his first “From the Bar” podcast, “Inside Compliance with Roger Fendelman,” he noted that his goal is to provide some answers about lender concerns and questions that are driven by the need to cope with rulemaking by the Consumer Financial Protection Bureau, or other entities.

An experienced attorney with over 15 years of residential mortgage lending experience, Fendelman helped develop PredProtect Compliance Suite, an automated regulatory compliance platform provided by Interthix and other products.

For example, the Interthinx Watchlist Review Module was designed as a stand-alone application that enables lenders to check the background of all participants in a mortgage loan transaction against multiple industry watch lists to ensure compliance with Fannie Mae’s Loan Quality Initiative, as well as rules from the Office of Foreign Assets Control and the Bank Secrecy Act.

Since some of the risk involved in the mortgage loan transaction rests with the loan participants, said Gayle Shank, vice president of product management at Interthinx, reviewing their background to learn whether these individuals, including the personnel involved in the closing, are on any industry lists “is a critical due-diligence step that federal regulators expect lenders to take.”

Shank sees this measure as a compliance issue with loss mitigation ramifications since those who fail to check “greatly increase the risk associated with a loan transaction.”

Interthinx executives say the Watchlist Review Module was designed to solve that problem by facilitating the screening of individuals and companies against all exclusionary lists at the same time.

The module uses name-matching software combined with algorithms to identify matching records. The module customizes the final report through a single-source interface.

Shank finds that although lenders and servicers who are conducting workouts and loan modifications may be aware of the Bank Secrecy Act requirement to screen closing participants against industry watchlists, they are not always effective in taking action.