Forget the industry’s troubles with adapting to and managing HAMP. It has become very apparent that the increasingly stringent audit process is the next cog in the wheel that will surely jam up mortgage servicing.
Industry professionals are struggling to remain compliant with the new regulations and guidelines without having to increase expenses and headcount. It may seem that now is not the time to look into a new system, and that any technology investments should be put on the back burner. However, now more than ever servicers need progressive methods to manage the volume of foreclosures. Now add to that increasingly more rigid requirements of an audit and there is no doubt servicers will have to employ technology to help them more efficiently manage their portfolios or even keep them alive.
A recent mandate from the Office of the Comptroller of the Currency now subjects more loans to audit than originally anticipated by servicers. Because more loans are going to be scrutinized, there is a greater chance auditors will find mistakes made by the servicers that will lead to even more scrutiny of their foreclosure process. Although the deadline was recently extended for this requirement, some of the largest servicers already agreed to submit plans to overhaul their business practices.
Along with the audits, servicers are required to hire independent consultants to review their foreclosures from the past two years and determine if laws were broken in each case. Should findings reveal that borrowers were wrongfully harmed, the bank would need to provide the proper restitution. According to Bryan Hubbard, a spokesman for the OCC, the foreclosure review could lead to compensation for "impermissible or excessive penalties, fees, or expenses, or other financial injury suffered." The agreement also requires servicers to provide a single point of contact for trouble borrowers, due to numerous complaints regarding confusion with the status of foreclosures and continually misplaced paperwork.
While the review findings will be sealed, according to a recent American Banker article, “Foreclosure Audits Won’t Be a Breeze After All,” any foreclosure mistake will result in a broader review, potentially covering the entire portfolio.
Another interesting caveat is that the OCC mandated that servicers publicize a consumer complaint review process. This enables homeowners who lost their homes in foreclosure to complain to an independent auditor. Undoubtedly, this regulation will add strain on servicers’ systems due to the inordinate amount of paperwork required, which may not be easily accessible and thereby further exacerbate the foreclosure process.
On top of the audits and reviews that servicers must endure, there is still a backlog in states such as Florida, which has turned the foreclosure process into a nightmare. On average, a foreclosure in Florida now takes 619 days to complete, according to RealtyTrac. While this is largely due to lack of state funds for courts to hear the foreclosure proceedings, the process is further complicated by missed mediation efforts and other mistakes made along the way. The extended process, filled with inaccuracy, translates into thousands of dollars of attorney fees and losses for servicers.
Summed up, inefficient processes, abundant with mistakes, are no longer acceptable—servicers must look to alternative approaches to manage the forthcoming audits, reviews and backlogs in order to approach the future with any optimism.
There is hope. It is still possible for servicers to comply with new demands and regain power by monitoring every aspect of the foreclosure process. Whether it is mailing disclosures to the homeowner or ensuring that all paperwork is compliant with current state and federal regulations, using technology to streamline and track the processes can lessen the burden. Along with having a dashboard that can show the status of any loan at any time, there are applications that can give servicers a traceable audit trail that meets compliance requirements; one that can withstand any amount of scrutiny. Providing the proper documentation and audit trail is paramount if they want to succeed, which is possible to achieve with technology.
Many servicers are still behind in their process improvement, and must act now to remain afloat. According to a panel at the Mortgage Bankers Association’s National Servicing Conference this year, the servicing industry needs to update its technology to respond to growing volume of homes that are either delinquent or in foreclosure. Contrary to what many servicers believe, implementing an automated workflow does not require a large capital investment or system overhaul. Instead, technology designed to streamline procedures can be aligned with current systems and generate a significant time and cost savings. Furthermore, the accuracy of the technology affords the servicers to reduce the fees and losses they incur.
Will there be some adjustments with new technology added to the mix? Definitely. Will it be less painful than worrying about the results of audits and facing possible litigation? Absolutely.
Sanjeev Dahiwadkar is president and CEO of IndiSoft, Columbia, Md.
