Mortgage Servicers Face Daunting, Changing Landscape
On February 20, MBA NewsLink published an article titled Mortgage Servicers Face Daunting, Changing Landscape.
Mortgage Servicers Face Daunting, Changing Landscape
ORLANDO, Fla.–Nowhere in the real estate finance industry has the landscape changed more over the past few years than in mortgage servicing.
“Twenty years ago, most of loan servicing and your interfacing with borrowers took place behind the scenes,” said MBA Chairman-Elect Bill Cosgrove, CMB, here at the MBA National Mortgage Servicing Conference & Expo. “In the post-crisis world we live in today, the servicing landscape has not only changed, but your role has moved to the forefront of policy discussion and has become incredibly visible.”
“The mortgage servicing playing field has certainly changed dramatically over the past few years. It’s had to adjust not only for companies to conform to the new regulations, but to also remain competitive and viable well into the future,” said Mortgage Bankers Association President and CEO David Stevens. “For example, the top 10 servicers of five years ago are not the same today. New players have entered the field while some others are expanding, contracting or retrenching.”
Stevens said mortgage servicers should be congratulated for continuing to provide vital service to customers under the intense scrutiny of policymakers, regulators and media. “It’s been a tough few years for servicers,” he said. “You’ve been inundated with a staggering amount of change born from an ever-changing market and the vast number of new rules, guidelines and regulations from a variety of different regulators and policymaking bodies.”
Little more than a year ago, the Consumer Financial Protection Bureau released its mortgage servicing final rule, which included nine pillars of servicing standards. Final revisions to the rule continued through the year as the January 10 compliance deadline drew near, including rule changes as late as an end-of-October interim final rule whose comment period didn’t close until just 50 days prior to implementation. Additionally, the industry saw no fewer than 40 new HUD mortgagee letters, new guidelines and announcements from Freddie Mac and Fannie Mae, as well as state requirements.
“All these changes have forced companies to rework policies, processes, controls and systems,” Stevens said. “And you have been left with the crucial responsibility of making it all work for your customers. You’ve dealt with unprecedented regulations, unprecedented updates, but the amount of work you accomplished is also unprecedented. You’ve been buried in implementation, all while striving to provide the highest standards of customer service to borrowers across the nation. Be proud of what you accomplished and how far you’ve come.”
Stevens noted as anticipated, the complexity of these rules significantly added to servicer costs. Direct servicing expenses are up, as well as indirect servicing expenses related to compensatory fees and other servicer penalties,” Stevens said. “There are unreimbursed foreclosure and REO costs, and also the corporate costs of legal, risk management and technology, among others. As you know, these costs are ultimately passed onto the consumer, further tightening the credit box and serving as a drag on the housing recovery…reduced efficiency, the shifting number and focus of servicers, the slow and convoluted judicial foreclosure process, on top of unprecedented regulation, all contribute to a lagging housing recovery.”
Cosgrove noted in today’s fragile housing market, financial institutions must have the ability to do business and be successful in every aspect of the mortgage manufacturing process. “I believe the long-term viability and success of any company depends on retaining some sort of servicing and/or maintaining sub-servicer relationships,” he said. “But like you, I have deep concerns as to the direction of current public policies and also what may come in the months ahead in terms of real estate finance reform. The regulations in place today have created a significant shift in the servicing landscape. While some companies have contracted or expanded their business in the servicing space, the changing landscape also lends opportunities for new players.”
Stevens said MBA is focused on solving three major problems he said are unnecessarily hindering servicers’ ability to effectively serve borrowers:
- Debt collection. The CFPB recently announced that it was collecting information to determine if all servicers should be subject to the Fair Debt Collection Practices Act in the same manner as a debt collector. “This goes well beyond anything Congress called for under Dodd-Frank, and demonstrates a fundamental misunderstanding of the role of a mortgage servicer–directly contradicting the national servicing standards’ focus on encouraging contact with borrowers,” Stevens said. “MBA recently met with the CFPB on these issues and we are encouraged that they understand the negative impacts of extending the FDCPA to servicers in this manner.”
- Alignment of regulatory requirements. In addition to the CFPB’s requirements for borrower contact, the GSEs, other agencies and investors have each overlaid requirements for borrower contact, delinquency management and foreclosure prevention. “Agencies seem to be competing to impose the most restrictive and complicated requirements on issues like vendor management, sub-servicer oversight and the management of servicing transfers, unfortunately often without regard for servicer costs or duplication among existing requirements,” Stevens said. “Consequently, servicing today requires juggling numerous, often duplicative requirements, each operating on a separate timeline–in addition to whatever requirements are imposed by the borrower’s state.”
Stevens said nowhere is this misalignment more clear than in the imposition of compensatory fees by the GSEs, noting data show servicers now face compensatory fees not for mistakes or unreasonable delays, but simply as the cost of doing business. “As servicers strive to implement the borrower protections of the CFPB’s national servicing standards and deal with complex, widely variable state rules, it is a mistake for the GSEs to impose unfair fees that punish servicers for enforcing those same protections,” he said. “Fannie and Freddie must update their timelines to reflect the realities on the ground and ensure that the process for imposing compensatory fees going forward is transparent, predictable and reflects the stated goals of the GSEs in imposing them.”
- Exams and audits. “At MBA, we want you to be prepared,” Stevens said. “Soon, if they haven’t already, federal auditors and CFPB supervisory exam teams will likely be taking up space in your offices. They’re going to review your procedures and processes to ensure compliance with the new federal regulations. While we appreciate the CFPB stating it will provide some leeway in its compliance examinations, you can still be penalized under the rules. And CFPB speeches about its intention to be reasonable in enforcement for good faith compliance efforts will have no impact on private rights of action if something goes wrong.”
Stevens also called on regulatory agencies, the GSEs and states to assist servicers with three simple steps:
- Clarity. “We need clear, explicit explanations of policies so that we can identify issues and address them effectively,” Stevens said.
- Time. “We need time to get it right,” he said. “Many of you are ready; some of you are not. The industry needs adequate time to address new rules and regulations so that we can implement these changes more effectively and within compliance parameters.
- Conflicts. “There are conflicts that exist in the rules and timelines,” Stevens said. “Between the CFPB, the GSEs and various state guidelines, you could think you are compliant with a rule but be out of compliance with a separate rule. We need to sort this out.”
“This is a consumer issue,” Stevens said. “Any confusion that gets place on you gets passed through to the consumer. We need clarity so that we can provide clarity to consumers.”
Cosgrove added that regulators should support policies that encourage further investment in state of the art consumer servicing platforms. “Not policies that reduce the servicing fee, thereby chasing away much-needed innovation, financial institutions and private capital,” he said.
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Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.