Mortgage servicing market insiders are monitoring regulators with the same attention the Consumer Financial Protection Bureau, the Office of Mortgage Settlement Oversight, the Department of Treasury and other federal and state legislators are monitoring mortgage banks in general and mortgage servicers in particular. The impact of this dynamic is significant and ongoing.
Since 2007 when the volume of delinquent mortgage loans increased to unprecedented levels, while surprised and unprepared, servicers started to reinvent their business and adjust. Today, besides that core adjustment servicers also are routinely challenged by regulators.
This year and in 2014 nine mortgage servicing rules recently issued by the CFPB will go into effect. The impact is big because, according to insiders, while servicers have been changing their operations and adopting new technology to catch up with the new reality, there still is a lot to do this year and the next so they remain in compliance.
At the MBA’s National Mortgage Servicing Conference in Dallas, Mark Fogarty, editorial director of the mortgage group publications, Amilda Dymi, managing editor, Mortgage Servicing News, and Evan Nemeroff, managing REO reporter, Mortgage Servicing News, sat down with industry insiders Ed Fay, CEO of Fay Servicing, John Vella, COO of Equator, and Loren Morris, general counsel and chief compliance officer of Retreat Capital Management, to hear, among other things, about their reaction to these rules.
While agreeing that servicers basically have a year to comply, which ought to be enough time, the panelists emphasized that starting right away is the right way to go. And while they admitted servicers may have made some mistakes during the onrush of defaults and foreclosures, they feel basically servicers want to do the right thing and will if given a chance.
Fogarty: The CFPB has issued nine mortgage servicing rules and they’re pretty detailed, and I’m just wondering what your initial reaction is to them, how’s it going to affect the servicing business?
Fay: As a servicer I can address them somewhat. There’s a combination of different things in the rules, and the most important piece is that I don’t believe there’s a total of rules that will make fundamental changes to how we do our business, with the exception of some of the single point of contact pieces. One of the biggest changes is just simply trying to make customers more aware of what’s happening with their situation—for example, with the ARM changes, adding an additional letter, 90 days instead of 45 days. So those changes for smaller servicers aren’t a big deal, it’s just adding another letter cycle. But if you’re talking about being a large bank or a servicer, how do you know a letter cycle is not a simple process? It will be difficult to implement some of the changes. Luckily they gave us a significant amount of time to make the implementations.
Fogarty: Not until 2014 that it comes into full effect, correct?
Fay: Yes. So again, we have plenty of time to make the changes, which I think—again, it can’t hurt. I’m not sure how much fundamental impact a lot of the changes will have, but it certainly can’t hurt.
Vella: There’s going to be a big impact. Even though it’s 2014, it’s going to take a lot of time for a lot of these servicers, even though they’ve been putting some of these rules in place. Still, by the time 2014, before we know it, it’s going to be here. And to implement it in a large organization, so many changes, in addition to the CFPB rules, all of the other investor rules and government rules that they’ve had to put in place, are still taking an impact.
The big piece, though, that’s going to be required, coming from a technology space here, is the need for proper technology to manage the process, because at the end of the day, it’s going to come down to compliance.
But in order to manage the compliance, you’re going to need proper data collection as well as audit trails, and what technology will do with these rules, it will allow for the servicers to document every step of the way the process that they’ve put in place to ensure that when it comes time to do an audit, they can go back and look at things such as dual tracking and 30-day notice and have snapshots of those decisions, the times they were made, and the underlying rules and attributes behind it, so if audited, and with penalties potentially facing them down the road, the need for proper compliance across, with most of these people, multiple sites. A lot of them use third-party-outsourced companies, so the need to properly manage it and dispose of all of rules and get them out to all the constituents, have proper training in place, have proper controls for documents and data, technology’s going to play a critical part in making sure that they’re within compliance.
Morris: What we may be seeing is a reconfiguration of the servicing industry as a whole, moving away from the large servicers who may not find default servicing economical or in the best interest of their shareholders. So you’re seeing the second- and even third-tier servicers as a specialty servicer or a subservicer coming into play, and that’s probably good from a consumer’s perspective as well as the industry’s perspective in that you’re going to have more high touch, which is the goal that the regulators are trying to achieve, is having a very high-touch servicing-orientated arena.