One of the differences between the way the housing finance industry is being regulated today compared to the way it was before Dodd-Frank and the Consumer Financial Protection Bureau is that lenders and servicers are now expected to prove both that they did not violate a rule and how they avoided violation.
In the past, having proved that such precautions were in place was enough to convince regulators that a compliance error was a mistake, and not the kind of systemic error that was likely to propagate across an enterprise, putting thousands or even tens of thousands of consumers at risk.
Today, the audit trail is the only real defense lenders have during an audit. Fortunately, the right technology makes that possible and even, in some cases, easy.
Servicers managing valuation and default/foreclosure processes can be inundated with data that has traditionally been spread across a number of computer systems and departments. Servicers have to consolidate all of this information in one place where it can be accessed by management and, when required, regulators.
This is a shift from what servicers were requesting prior to that time, when they were far more focused on managing their timelines, especially during the default process. While this is important, one client recently told us, "Obviously, it's important to reduce the timeline, but it's even more important right now to document and track everything completely."
Much of the data the servicer needs to track isn't even generally displayed to the user, such as the timestamp that the system records every time the file is saved or the time spent on performing certain activities on the file. These are things that regulators are asking to see. Servicers need an easy way to show the information to them, but more importantly, they need a way to track and manage to these data points before they experience an audit.
The goal for the industry should be to make compliance as automatic as possible, using technology both as a facilitator of compliant work and as a quality assurance tool for catching mistakes before they become problems. This becomes more difficult when the rules change, whether those changes actually make sense for the industry and consumer or not. One thing we've learned about the current environment is that things are going to continue to change, at least for the foreseeable future.
There must be an analytical or consultative component to any solution that has a possibility of serving long-term.
That means that lenders and servicers cannot choose technology based only — or even primarily — on the technology itself. It also means that the universal claim by vendors that "we have really great people" should be studiously ignored, at least until it has been demonstrated.
A smooth process isn't just about the technology's impact on the workflow, but also on the client-vendor partnership that creates, implements and manages the systems employed. Especially on the servicing side, where loss severities can easily pull any remaining profit out of a deal, executives should expect technology vendors to provide capable business analysts and technologists who can help them determine what information management needs to see, how it should be presented and then what's missing.
A good analyst can help the IT and operational teams create a launch plan for every new project that provides a full and complete scope for the project as it exists at the beginning of the project. Many times, that scope might change as the environment changes during development or implementation, but having it in writing from the beginning makes those changes manageable.
An IT or vendor person dedicated to the solution must take ownership and accountability for the platform.
Creating teams like this makes it possible for the client and vendor to create a plan that should be developed to use technology to fill in any gaps and make that information available. Expect regulators to ask for different information over time, and for this to be an iterative process.
Doing business in an environment where work must not only be done well, but also shown step-by-step to regulators requires good technology. Right now, the problem that must be solved is creating the most transparent audit process for managers and regulators. This, more than anything else the servicer can do now, will reduce compliance costs and create a more smoothly-operating company.
Amy Bergseth is vice president of operations for Default Servicing Technologies.