The Consumer Financial Protection Bureau (CFPB) swooped in this past summer and, once again, took aim at mortgage servicers in a special edition of its supervisory highlights. Building its case from servicing exams, the CFPB was relentless in its description of failed technology and loss mitigation process errors. The real victim, however, is the consumer. With no option to shop or choose who will service their loans for the next decade, give or take a few years, communication is often untimely, unclear and/or inaccurate, leaving consumers ill-informed and, in default scenarios, severely at risk for foreclosure. Although the CFPB has acknowledged that servicing investments in technology improved over the last couple of years, it also clearly sees that this effort has fallen short and antiquated technology continues to put consumers at risk.
Determined to stimulate the industry’s adherence to compliance rules, the CFPB simultaneously issued a third mortgage servicing update to its Supervision and Examination Manual. Richard Cordray, director of the bureau, remains consistent in his stance in the matter, stating during the recent Mortgage Bankers Association’s Annual Convention and Expo in Boston that “outdated and deficient servicing technology continues to put many consumers at risk.” Cordray added that “needless errors impose harm to consumers facing delinquency or engaged in loss mitigation processes. These shortcomings can become chronic when servicers do not implement proper system testing and auditing processes.” Cordray took a hard stance on this topic in the update released earlier this year, when he stated that “mortgage servicers can’t hide behind their bad computer systems or outdated technology. There are no excuses for not following federal rules.”
These rules are designed to protect the consumer throughout the servicing lifecycle. The CFPB’s mortgage servicing rules and examination practices strive to ensure consumer protection by prioritizing industry factors based on their capacity to create a harmful scenario – for example, larger servicers are believed to cause greater risk than their smaller counterparts. Along these lines, recent changes to examination processes emphasize the importance of properly handling consumer complaints and adherence to fair lending laws when evaluating loan modification applications.
Nearly all of the examination findings raised by the CFPB in the report, and the accompanying press release, focus on loss mitigation. This is a broad area; however, the bureau says it took notice when servicers failed to do the following:
- Meet the five-day loan modification acknowledgement requirement on all applications;
- Ensure foreclosure doesn’t occur while a borrower is still in loss mitigation; and
- Accurately disclose requests for documentation and/or denial reasons.
The five-day acknowledgement requirement is difficult to manage without rules-based technology and interactive workflow. Applicable to all loss mitigation applications that are received 45 days prior to foreclosure sale, the servicer’s requirements are to acknowledge receipt of the application, assess the completeness of the application, identify additional information needed and provide a “reasonable” date for the borrower’s response – all within five days.
This level of coordination and assessment is not resident in traditional servicing platforms. Adding to the complexity, servicers must ensure that foreclosure does not take place while the consumer is actively engaged in the loss mitigation process. The servicing industry is not permitted to run dual tracks, so it must stave off foreclosure for all borrowers who are actively in the loss mitigation process. Adherence to timelines, accurate documentation requests and appropriate denial reasons were also found to generate significant errors.
Impaired consumer access to online loss mitigation workout tools;
Failure to recognize the status of in-flight modifications due to improper data at time of transfer;
Delayed movement from trial payment periods to permanent loan modification; and
Loss mitigation personnel’s lack of authority to manually override rejected and incorrect data.
On a positive note, the CFPB is confident that a solid post-transfer plan, coupled with up-to-date technology, is the solution.
Wrapping up the examination findings and driving home the importance of these issues within servicing shops, the CFPB’s special edition also focuses on compliance with Regulation X, the Real Estate Settlement Procedures Act. The following servicing policies and procedures were cited as not reasonably meeting a number of important objectives:
- Responses to borrower requests for documents were untimely – for example, loss mitigation applications not provided in follow-up to consumer inquiries;
- Probate was required in non-probate states;
- Consumers were solicited for loss mitigation when not eligible;
- Documents submitted by borrowers were not handled properly (i.e., date stamped, cataloged and/or distributed to appropriate departments);
- Borrowers were not evaluated for all possible loss mitigation options;
- Foreclosure communications were issued to borrowers under a loss mitigation agreement; and
Critical documents were not identified at time of servicing transfer.
These issues can be significantly improved through technology, as has been evidenced in several of the servicer shops examined by the CFPB. However, this is a costly proposition for servicers that are already contending with compliance costs that have steadily increased since the financial crisis. At the end of the day, however, the issue remains: How can technology help the consumer, especially during a time when most servicers can’t afford new systems? With the rising cost to service a loan, there simply isn’t the margin or ability to produce a feasible return on investment that supports substantial investment in innovative technology. With only a handful of servicing platforms available – most decades old – dynamic solutions are desperately needed to leverage the data from these systems. Flexible solutions that allow servicers to build and change rules to the workflow behind the scenes, as well as offer a consumer-friendly front end, are a necessity.
Servicing technology needs to meet at least some, if not all, of the following criteria:
- Assist servicers in tracking and trending historical loan performance;
- Support testing and auditing of existing computer systems and software platforms;
- Readily transfer data between systems with accuracy;
- Access and utilize data that is maintained on older systems of record;
- Provide analytical tools to search, review and track complaints that indicate regulatory violations;
- Audit internal controls, identify issues, and detail management responses, including target dates for resolution;
- Generate alerts and tracking of required disclosures and timelines;
- Create and manage business rules that track requests and receipt of approval documents, as well as workout documents;
- Create customizable views of loss mitigation activities during servicing and before and after servicing transfers;
- Manage data in real time to ensure communications are accurate and timely; and
- Provide mobile access for consumers to gain information and launch workflow.
Mortgage servicers need to rethink the servicer business model and focus on the consumer experience first, working backward from current models to improve technology. Measures of servicer success and reputation increasingly focus on the consumer experience.
During this time when failed technology is notably harming consumers, this approach becomes even more relevant. Servicers need to take heed of the issues put forth in the CFPB’s special edition of supervisory highlights and consider this a call to action. The key to bringing the servicing business through this time of changing rules and regulatory scrutiny is to invest in technology. Minimizing consumer risk of foreclosure that results from incompatible servicer platforms and outdated systems is a must and would correct the vast majority of CFPB-identified violations.
Servicers can no longer forego efforts to automate and innovate, ensuring outdated servicing systems do not expose consumers to unnecessary risk during loss mitigation efforts. They can combat these concerns by using a proven enterprise workflow solution that manages borrower satisfaction and customer engagement, as well as by ensuring loss mitigation compliance.
Servicers would be well-advised to compare the functionality of their existing, legacy workflow systems with the next-generation, Web-based systems that are available today. Now’s the time to look outside of the box and try to innovate, with the consumer in mind.
Jane Mason is the founder and CEO of Clarifire, which offers a multidimensional enterprise workflow solution used in multiple industries, including mortgage servicing. She can be reached at firstname.lastname@example.org.