The Consumer Financial Protection Bureau (CFPB), earlier this summer, released a special edition supervision report focused specifically on mortgage servicers, and frankly, it made for uncomfortable reading for some. Key findings of the report noted a number of ongoing mortgage servicing problems that could potentially trigger violations of the CFPB’s new servicing rules.
Among the mortgage servicing issues pinpointed by the CFPB were problems with loan modification acknowledgement notices, including modifications being sent out too late or never, due to processing platform breakdowns or malfunctions over a significant time period, and in other cases, notifications containing inaccurate information or deceptive statements.
Borrowers also experienced frustrations when their loans transferred to a new servicer with a different servicing system, as the new servicer failed to identify and honor in-place loss mitigation. Other common failures included documents not being delivered to the new servicer and data transfer issues due to complexities with data mapping or missing and incomplete data.
Not long after the release of the report, the CFPB also released a set of updates to its servicing rules, providing further protections for struggling borrowers. The “updated rule requires servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan, clarifies borrower protections when the servicing of a loan is transferred, and provides important loan information to borrowers in bankruptcy.”
Mortgage servicers feeling the pinch in ever-evolving landscape
Mortgage servicers today are experiencing a number of pain points. The increased oversight from the CFPB adds another layer of complexity to doing business for mortgage servicers,
Today’s economic and market uncertainties also make it imperative for a servicer to have a complete picture of its customers’ loan relationships in order to drive effective default management – but this is hugely problematic when a default strategy relies on incomplete or disjointed information resulting from reliance on outdated technology.
Loss mitigation demands rigorous adherence to federal requirements, necessitating efficient gathering of information needed for a rules-based analysis of workout options, including compliance with Fannie Mae and Freddie Mac requirements. Without a technology solution to guide the workflow, a servicer can find itself performing the correct activities but out of sequence or not within the correct time periods.
Antiquated technology causes more pain
Increasing borrower expectations demand that excellent service be provided, but given that mortgage servicers operate in an environment of strict, evolving regulations and with slim margins, any investments in technology solutions must be approached very deliberately, with an intense focus on customer service balanced by the realities of cost benefit. However, because antiquated technology is a key cause of higher operational costs, organizational inefficiency and, now, compliance mismanagement, modernizing servicing platforms is now top of mind for many organizations.
Finally, for servicers using numerous servicing modules to manage various servicing functions, issues with data standardization and consistency can emerge, especially where modules are built over time on top of each other, potentially with differing data models or definitions. In such scenarios, creating business rules based on conditions or activities performed by other modules can be problematic, if not impossible. This means the challenges associated with aging and inefficient technology are multiplied.
The solution: a single-platform strategy
With stakes as high as they are, servicers must evaluate ways to refine their processes and mitigate regulatory compliance and operational risk. The key to thriving – both now and in the future – will be technology. The winning financial services institutions will be the ones that transform their business models to place data quality and risk management at the center of their operations. Many are evaluating a single-platform strategy, which may include a single all-encompassing system, or point solutions tightly integrated to a core servicing platform. Such strategies take into account a more holistic view of borrowers, which may result in a superior borrower experience.
Workflow automation plays a key role in demonstrating organizational control and adherence to policies and procedures over many lending activities, in addition to compliance best practices and procedures. Forward-thinking organizations are rising above a typical “bare minimum” approach to automation and analysis of loan information in order to uncover process improvements, as well as other opportunities, to increase efficiencies. Combining human, document and process-centric workflows; enterprise content management; and current best practices can provide a powerful turnkey solution. The capability to develop workflows that leverage data from multiple servicing functions and integrate them within a single platform creates consistency for all borrowers and compliance with policy and procedures.
Whereas a “module”-based servicing system can experience issues with data consistency, a single-platform approach creates more data consistency and integrity across all servicing functions. Even where new functionality is introduced to the system, it is built into the system architecture, taking into account how data flows and impacts other areas of the platform.
Even where point-solution technology approaches are taken, servicers should look for adherence to industry standards, such as the Mortgage Industry Standards Maintenance Organization. Servicers should also focus on how the modules integrate with their core servicing platform, ideally with real-time integration, to check for data consistency and timeliness.
Manage risk smartly and reap the reward
The industry continues to undergo rapid change, and thriving in today’s lending space, where loan quality and risk management challenge profitability, is more difficult than ever. In addition, borrowers are demanding greater satisfaction and are unwilling to accept a poor customer experience. The financial demands of homeownership can be stressful, and today’s busy consumer wants to be able to enjoy his home without having to concern himself with the minute details of his mortgage loan.
Being able to respond more rapidly to changes in the industry gives a servicer much greater control over its servicing functions. A successful servicer that focuses on a single-platform or real-time integration strategy may find itself opening up new avenues for both cost management and revenue generation.
John Park is product manager for lending solutions at Fiserv Inc., which offers a range of technology solutions for mortgage lenders and servicers. He can be reached at firstname.lastname@example.org.