The Importance of Efficiency in an Uncertain Compliance Environment
Mortgage loan servicers continue to operate in an increasingly complex and fast changing regulatory environment. With increased scrutiny and enforcement measures, it is critical that servicers meet these demands. As compliance gets more complicated and more expensive, servicers are looking for alternative ways to efficiently exceed regulatory standards without increasing costs.
We spoke with Maria Moskver, General Counsel and Enterprise Compliance Officer at LenderLive, to learn more about the challenges facing servicers to remain efficient while also remaining compliant. LenderLive has a strategic approach that can assist servicers with meeting requirements while maintaining compliance budgets.
Question: What is the right course for the servicing industry?
Answer: Companies should carefully evaluate the strengths and weaknesses of their current operations, and consider outsourcing any gaps to trusted partners that are experts in those areas.
Returning to their core expertise and partnering with a firm that specializes in compliance services can maximize their time and results. Monitoring regulatory changes, performing custom research and consulting, maintaining libraries of compliant templates - these are the things we do on a daily basis. As a result, our clients can save money by leveraging our expertise rather than committing internal legal and compliance resources and spending significant costs on outside counsel.
I believe the best solution is outsourcing, but this isn’t like outsourcing in the past where companies simply threw work over the fence and waited for results to come back. Today, only well-formed partnerships between parties that know and trust each other will succeed. The compliance stakes are too high for anything less. This is especially true now that the CFPB has announced direct supervision of service providers. Banks cannot outsource compliance responsibilities to third party service providers, but they may want to outsource certain processes to stay efficient and competitive. This means they must have a robust vendor management program and partner with a company that can help them with their compliance needs while meeting vendor management requirements.
Question: Has the struggle to meet compliance requirements caused lenders to be less efficient?
Answer: Yes, because of the dynamic nature of the regulatory environment, servicers have to spend an increased amount of time and money focused on compliance. They are forced to meet multiple deadlines imposed by state and federal regulators, investors and the GSEs. Pressure to meet these multiple deadlines results in inefficient workarounds and one-off processes. Once those processes are in place, they typically continue because other priorities arise and there is not enough time to go back and change them.
They have to take the time to research, understand, implement, and audit all of those changes with the involvement of multiple stakeholders. Even in small companies, this is difficult. In large companies, it can take months to even implement the most basic changes. The results are inefficient processes which increase the risk of being out of compliance with state and federal law.
Question: Why are servicers challenged in this environment?
Answer: It is a very challenging regulatory environment and has been since the enactment of Dodd-Frank. And we do not expect any significant regulatory relief in the short term, even if there is an activity to curtail the influence of the CFPB. Servicers must monitor a host of new bills and regulations to see which ones get enacted; understand and analyze how these requirements may impact their servicing operations; develop and test an operational plan to meet the new requirements, train their people, and implement the changes the rules are effective. If they are late implementing a regulatory change, or they make an error that puts them out of compliance, that can be costly, both from a financial and reputational perspective.
Also, in the current environment, servicers cannot be sure if a new piece of regulation will ever actually be effective. For example, the CFPB has adopted rules to extend existing mortgage servicing rules to “successors in interest” – those with interest in the property in addition to the borrower (an heir, for example). These new rules are effective in April 2018. However, because CFPB Director Cordray may resign from the Bureau to run for political office, it makes that effective date very uncertain. A new Trump-appointed director could come in and decide to reissue all of the pending rules. This would obviously both impact the requirements themselves and any effective date(s). As a result, servicers need to decide whether they will prepare to meet the new requirement or wait and hope that it will not be implemented. The longer the company waits, however, the higher the risk they will miss the deadline.
Question: Are your clients surprised at how much efficiency you can add back into their operations?
Answer: We work very hard in every aspect of our business and are passionate about helping our clients succeed. We assist our clients by monitoring regulatory changes at the state and federal level, interpret those changes, communicate the changes in a way that is actionable and most impressively help our clients implement the changes very quickly. Our clients have come to us because they have tried to do this in-house and know how difficult it is.