Earlier this year, the Consumer Financial Protection Bureau (CFPB) released a special edition of its Supervisory Highlights that specifically called out its ongoing concerns with servicers in the areas of loss mitigation and transfers. The Transfer of Servicing Rules (Regulation X, Part 1024 of the Code of Federal Regulations and guidance from CFPB Bulletin 2-14-01) address important servicing transfer requirements, including those that are intended to help protect consumers from any disruption in the appl
ication of their payments or in the conduct of loss mitigation processes that may be under way. The rules are also intended to help consumers know who their servicer is, know how to contact the organization that is servicing their loans, and ensure that they do not experience service disruptions or any other issues due to a servicing transfer.
Key elements of the servicing transfer
For servicers that purchase mortgage loan portfolios or mortgage servicing rights from other servicers, ensuring that these transactions are as seamless as possible for customers is a critical objective. Therefore, a careful analysis of the portfolio that is transitioning between two servicers is foundational to the transfer strategy and to the design of the plan created to achieve the desired results. Of course, transfers between similar servicing platforms are usually the least complicated to execute – but with robust technology tools and the expertise of knowledgeable servicing teams, transfers between older, more-disparate systems can still be successful.
At the heart of the servicing transfer is moving each consumer’s mortgage information – field by field – from one servicing platform to another. As a result, servicers must map this information from the seller’s servicing platform to the appropriate data fields in the buyer’s system to make sure nothing is missed in the transfer. This mapping process allows portfolio buyers to determine exactly what data they will receive and make any necessary adjustments that are needed to enable servicing functions to continue as intended.
Once data is mapped from one servicing platform to another, a template can be designed to support similar transactions between a specific seller and buyer in the future. This can help make even transfers of large portfolios more manageable and efficient. In addition, loan boarding technology, which is typically utilized to bridge loans from an origination system directly to a servicing system, might also be used to help support the transfer of an acquired portfolio by converting consumer data into transactions that can then be boarded onto the servicing system.
Some of the challenges
There are challenges associated with mortgage loan portfolio transfers, most of which are associated with the complexity that comes with an almost endless number of variables. For example, the number of government-based loss mitigation and loan modification programs that were designed to assist distressed homeowners in years past continues to add a layer of complexity to today’s servicing transfer. The Federal Housing Finance Agency (FHFA), the Federal Housing Authority, the U.S. Department of Veterans Affairs and the government-sponsored enterprises established certain requirements related to loss mitigation options that may have been similar – but with unique differences – from program to program. In addition, some mortgage servicers established their own modification approaches to help distressed homeowners stay in their homes, based upon the circumstances of those borrowers and the policies and practices of individual financial institutions.
To accommodate the variety of programs, processes, procedures and decisioning options that were introduced, servicers may have developed or purchased a variety of systems and software programs to support those options. For example, some servicers built or procured ad hoc systems to help them with the underwriting processes associated with the Home Affordable Modification Program (HAMP), and today, consumer information may still be stored there. Servicers may have also invested in proprietary systems specifically designed to track the requirements associated with closed HAMP loans, although stored status information in these systems doesn’t typically indicate what’s going on with a loan today.
The incredible range of variables that must be managed in the transfer of a single mortgage loan portfolio continues to make servicing transfers an exercise that requires acute attention to detail. It also requires the support of highly experienced technology and migration professionals who know how to navigate the plethora of systems, loan types, data formats, security and storage possibilities that may be encountered while working toward a successful servicing transfer.
Finding and capturing missing data
Beyond the many system-related variables that must be solved for during a servicing transfer, one of the most significant challenges that servicers typically face during a servicing transfer is the lack of standardization in the way servicers across the industry have stored loss mitigation and default information over the years. This means that during a servicing transfer, the data mapping process mentioned earlier may identify that certain information – such as a customer’s loss mitigation history – is missing from the servicing record.
This missing information might be stored in a seller’s proprietary system or application that was initially developed to enable closer monitoring of loss mitigation initiatives, for easier access or for other reasons. For example, loss mitigation or default data might be partially stored on a servicing platform, in an Access database, on Excel spreadsheets or in other places across the enterprise. This can make it difficult to track down missing information that is vital for the servicer to not only provide seamless service to the consumer, but also comply with regulatory requirements.
Transferring the mega portfolio
When a transaction between servicers involves the transfer of a very large volume of loans – for example, from 100,000 loans to more than 1 million loans – the transfer of the portfolio is no longer just about moving loans from one system to the next. It is an organizational and procedural effort, as well, and may require the servicer to conduct a needs assessment to make sure any potential problems are identified and addressed prior to the transfer.
For example, an evaluation of the servicer’s current servicing platform – including the way it is set up and the identification of any changes that are needed to accommodate the incoming portfolio – should happen long before the transfer occurs. This process helps servicers not only focus on areas that must be addressed, but also make sure the needed resources are identified and that enough time is allotted to address them properly. This is even more important if the incoming servicing portfolio includes loan products that the receiving servicer has not worked with before. Before the loans can be boarded, some development work may need to occur in order to properly service the new loan types.
A transfer of this nature requires a combination of professional services experts to conduct the analysis that is required to make on-target recommendations, as well as technology experts to design and execute those recommendations. In addition, other professionals such as organizational experts may be involved and can make further recommendations about issues outside of the technology environment that should be addressed in advance of the transfer.
A more standardized approach
Mortgage industry servicing technology providers continue to develop robust tools to help pave a smoother road for future servicing transfers. In addition, a move toward a more uniform approach to modifications could potentially help to reduce friction in future servicing transfers. As HAMP sunsets, there appears to be some consideration in that direction by the FHFA, with the idea of a single standardized loan modification – also known as One Mod – being one of the possibilities that may eventually come about. If so, and if private investors follow suit in terms of a more standardized approach, servicing transfers should be made even more efficient and much more manageable in the future.
A standardized modification approach could help servicers create a more consistent consumer experience during and following a servicing transfer, with some of the complexities associated with the many unique features of prior loan modifications reduced or eliminated. Although the wide variety of loan types will continue to make up the greatest percentage of modified loans for years to come, the introduction of fairly standardized loan modification options can help enable a less complicated transfer of loans in the future.
In addition to a more standardized loan modification approach for those homeowners who need it, the eventual elimination of ancillary programs and technology that operate outside of the servicing environment will help make consumer data easier to locate and associate with the consumer’s servicing records. Although the mortgage servicing industry is already making strong headway in this regard, new changes and requirements may still occur that impact mortgage servicers over time. Still, as servicers continue to move away from the complexities that were connected with the mortgage meltdown years and move toward standardized technology and solutions, mortgage servicing transfers should be made more seamless and efficient, with little to no impact on servicing customers.
George FitzGerald is executive vice president of solutions management for Servicing Technologies, a division of Black Knight Financial Services. He can be reached at firstname.lastname@example.org.