Servicing regulations and oversight aren't new concepts for mortgage bankers, but the motivation and processes are evolving to meet the demands of current market conditions.
Investor oversight was at a higher level in the past, but is now taking a deeper dive into loan-level metrics. Mortgage insurance companies have historically monitored servicers, said Scott Gillen, senior vice president of strategic initiatives at Stewart Lender Services -- but nothing like it is today, he said.
In addition, oversight has become borrower-centric. The focus is not on returns necessarily, but on making sure the customer is taken care of, Gillen said during a panel at the recent MBA servicing show.
At his own company, investors and other stakeholders are now requiring reviews of policies and procedures, pre-foreclosure and foreclosure processing, fees and expenses and what Gillen called “belt and suspender” reviews or a “review of the review.”
At the Consumer Finance Protection Bureau, data is extremely important, said Christopher Haspel, senior advisor on servicing and securitization at the young agency. “We strive to be a data-centric agency,” he said.
In addition to the increased focus on data, the information must be delivered in real time, said Nigel Brazier, managing director of Newbold Advisors. “Regulators and oversight bodies want to see something today,” to ensure compliance with regulations, he said.
To do this, servicers are capturing more data and using more advanced techniques to monitor results.
M. Diane Pendley, a managing director of Fitch Ratings who is responsible for the agency's servicer rating program, said Fitch has a standard list of data points that servicers provide for ratings review, but that list is growing to include additional information, like modification performance.
Once a servicer begins collecting robust data on its performance, Pendley said it takes about a year before a large enough dataset is amassed to performing meaningful analysis. “The sooner you can start capturing the data, the better you're going to be,” she said.
Fitch annually reviews the methodology behind its servicer ratings, but a more drastic change came in mid-2011, when it revised the way that servicers' financial condition impacts their overall ratings.
“We took the stance that the big banks, or any bank, was getting a lift because they are a weighted entity,” Pendley said. “But just because they have the money, that doesn't mean they staffed up or added new technology when they should have.”
Depositories were getting a lift in their servicer rating metrics because of their access to cash, which was slowing down smaller servicers that may be more nimble or technologically sophisticated.
Servicers must still have the financial footing to support their book of business, but the metric is a pass/fail, eliminating the artificial boost for large banks.
