Servicers Need Clarity on CFPB’s View of Private-Label Practices

Investor Update
January 11, 2017

Earlier this year the U.S. Government Accountability Office issued a report which emphasized the fact that the share of mortgages serviced by nonbanks increased from 6.8% in 2012 to 24.2% in 2015.

This rise in market share by nonbank servicers leads many to believe that the practice of private-label servicing is ripe to be reviewed by the Consumer Financial Protection Bureau under their risk-based approach to supervision and enforcement.

The CFPB does not address the practice of private-label servicing in their guidance or any regulation. A common response to informal inquiry to the bureau is that the practice in not a violation per se.

However, given the CFPB’s penchant for regulation by enforcement, the mortgage industry needs to know where the line is drawn between a “service provider” or “vendor” performing the duties of private-label servicing and the duties of a subservicer. This is an opportunity for the Bureau to move away from the practice of regulation through enforcement and issue guidance that good actors in the space can use to avoid any unnecessary regulatory violations.

The report also stated that it is important for the CFPB to take steps to identify all nonbank entities and collect more comprehensive data to further ensure that all nonbank servicers comply with federal laws governing mortgage lending and consumer protection.

As mortgage servicing compliance costs have risen year over year, lenders have looked for a way to decrease costs while retaining their customer visibility and brand awareness. In response to this demand, private-label servicing has grown in popularity.

Private-label servicing products come in an array of offerings, ranging from a simple cobranding of billing statements which include the lending institution’s name and logo, all the way through private borrower-facing payment portals linked from the lender’s homepage with ACH drafts, credit reporting and collection activity all done in the lender’s name by the said private-label servicer.

With the most comprehensive offerings of private-label servicing, the borrower never knows the subservicer exists, and that’s the point. The wide spectrum of how this service is offered along with its increase in popularity, calls for regulatory guidance.

Those that are currently performing private-label servicing or utilizing the service rely on the argument that a subservicer providing private-label servicing is acting as a service provider or vendor of the servicer who retains the mortgage servicing rights.

As a service provider or vendor they are not acting as a traditional subservicer. The argument, while formally untested, is a valid one, there are service providers and vendors who perform activities for servicers every day that do the work in the name of servicer. However, there is an argument to be made that outsourcing the entire servicing business escalates a lender from a service provider or vendor to a subservicer.

Regulation X defines “master servicer” and “subservicer” but fails to address private-label servicing. Master servicer is defined as “the owner of the right to perform servicing. A master servicer may perform the servicing itself or do so through a subservicer.”

Subservicer is defined as “a servicer that does not own the right to perform servicing, but that performs servicing on behalf of the master servicer.” While “service provider” is defined in section 1002(26) of the Dodd-Frank Act as “Any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.”

Without formal guidance, there are at least five regulatory questions without a clear answer:

  • Is the lender required to issue a Notice of Transfer of servicing rights when loan boards with a private-label servicer?
  • Can the private-label servicer furnishing credit reporting in the name of the holder of the MSRs without violating the Fair Credit Reporting Act?
  • Which entity’s name should appear on a debt validation notices or mini Miranda warnings when acting as a collector on defaulted loans under the Fair Debt Collection Practices Act?
  • How will the private-label servicing be treated under Dodd-Frank’s unfair, deceptive, or abusive acts or practices policy, and what would be the best practices for both the subservicer and the master servicer to avoid a UDAAP violation?
  • Who would issue a privacy notice under the Gramm-Leach-Bliley Act?

For small originators who currently utilize private-label servicing it’s important to note that the CFPB is very clear about vendor liability; they have issued guidance on the topic found in CFPB Bulletin 2012–03. The use of a subservicer for private-label servicing does not absolve an institution of the compliance and/or regulatory risk. Prior to engagement, an institution should have a complete audit of policies, procedures and controls its private-label servicer has in place. These reviews should be completed on a regular basis.

Controls like these reviews will limit regulatory exposure but not eradicate it. Conversely, subservicers offering private-label servicing should be assessing if they have sufficiently reviewed procedures and product offerings under all applicable consumer lending regulations at both the state and federal level to ensure compliance.

Eventually, the mortgage industry will see guidance and regulations which address the issues raised in private-label servicing at the state level and/or the federal level, until then the industry should be very attentive to the risks associated with the practice and push for more guidance on the topic.

Craig Nazzaro is of counsel in regulatory and compliance issues in Baker Donelson’s Atlanta office.

Source: National Mortgage News

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CHIEF EXECUTIVE OFFICER

Alan Jaffa

Alan Jaffa is the chief executive officer for Safeguard, steering the company as the mortgage field services industry leader. He also serves on the board of advisors for SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Alan joined Safeguard in 1995, learning the business from the ground up. He was promoted to chief operating officer in 2002, and was named CEO in May 2010. His hands-on experience has given him unique insights as a leader to innovate, improve and strengthen Safeguard’s processes to assure that the company adheres to the highest standards of quality and customer service.

Under Alan’s leadership, Safeguard has grown significantly with strategies that have included new and expanded services, technology investments that deliver higher quality and greater efficiency to clients, and strategic acquisitions. He takes a team approach to process improvement, involving staff at all levels of the organization to address issues, brainstorm solutions, and identify new and better ways to serve clients.

In 2008, Alan was recognized by Crain’s Cleveland Business in its annual “40-Under-40” profile of young leaders. He also was named a NEO Ernst & Young Entrepreneur of the Year® finalist in 2013.

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Chief Operating Officer

Michael Greenbaum

Michael Greenbaum is the chief operating officer for Safeguard. Mike has been instrumental in aligning operations to become more efficient, effective, and compliant with our ever-changing industry requirements. Mike has a proven track record of excellence, partnership and collaboration at Safeguard. Under Mike’s leadership, all operational departments of Safeguard have reviewed, updated and enhanced their business processes to maximize efficiency and improve quality control.

Mike joined Safeguard in July 2010 as vice president of REO and has continued to take on additional duties and responsibilities within the organization, including the role of vice president of operations in 2013 and then COO in 2015.

Mike built his business career in supply-chain management, operations, finance and marketing. He has held senior management and executive positions with Erico, a manufacturing company in Solon, Ohio; Accel, Inc., a packaging company in Lewis Center, Ohio; and McMaster-Carr, an industrial supply company in Aurora, Ohio.

Before entering the business world, Mike served in the U.S. Army, Ordinance Branch, and specialized in supply chain management. He is a distinguished graduate of West Point (U.S. Military Academy), where he majored in quantitative economics.

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CHIEF INFORMATION OFFICER

Sean Reddington

Sean Reddington is the new Chief Information Officer for Safeguard Properties LLC. Sean has over 15+ years of experience in Information Services Management with a strong focus on Product and Application Management. Sean is responsible for Safeguard’s technological direction, including planning, implementation and maintaining all operational systems

Sean has a proven record of accomplishment for increasing operational efficiencies, improving customer service levels, and implementing and maintaining IT initiatives to support successful business processes.  He has provided the vision and dedicated leadership for key technologies for Fortune 100 companies, and nationally recognized consulting firms including enterprise system architecture, security, desktop and database management systems. Sean possesses strong functional and system knowledge of information security, systems and software, contracts management, budgeting, human resources and legal and related regulatory compliance.

Sean joined Safeguard Properties LLC from RenPSG Inc. which is a nationally leading Philintropic Software Platform in the Fintech space. He oversaw the organization’s technological direction including planning, implementing and maintaining the best practices that align with all corporate functions. He also provided day-to-day technology operations, enterprise security, information risk and vulnerability management, audit and compliance, security awareness and training.

Prior to RenPSG, Sean worked for DMI Consulting as a Client Success Director where he guided the delivery in a multibillion-dollar Fortune 500 enterprise client account. He was responsible for all project deliveries in terms of quality, budget and timeliness and led the team to coordinate development and definition of project scope and limitations. Sean also worked for KPMG Consulting in their Microsoft Practice and Technicolor’s Ebusiness Division where he had responsibility for application development, maintenance, and support.

Sean is a graduate of Rutgers University with a Bachelor of Arts and received his Masters in International Business from Central Michigan University. He was also a commissioned officer in the United States Air Force prior to his career in the business world.

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General Counsel and Executive Vice President

Linda Erkkila, Esq.

Linda Erkkila is the general counsel and executive vice president for Safeguard and oversees the legal, human resources, training, and compliance departments. Linda’s responsibilities cover regulatory issues that impact Safeguard’s operations, risk mitigation, enterprise strategic planning, human resources and training initiatives, compliance, litigation and claims management, and mergers, acquisition and joint ventures.

Linda assures that Safeguard’s strategic initiatives align with its resources, leverage opportunities across the company, and contemplate compliance mandates. Her practice spans over 20 years, and Linda’s experience covers regulatory disclosure, corporate governance compliance, risk assessment, executive compensation, litigation management, and merger and acquisition activity. Her experience at a former Fortune 500 financial institution during the subprime crisis helped develop Linda’s pro-active approach to change management during periods of heightened regulatory scrutiny.

Linda previously served as vice president and attorney for National City Corporation, as securities and corporate governance counsel for Agilysys Inc., and as an associate at Thompson Hine LLP. She earned her JD at Cleveland-Marshall College of Law. Linda holds a degree in economics from Miami University and an MBA. In 2017, Linda was named as both a “Woman of Influence” by HousingWire and as a “Leading Lady” by MReport.

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Chief Financial Officer

Joe Iafigliola

Joe Iafigliola is the Chief Financial Officer for Safeguard. Joe is responsible for the Control, Quality Assurance, Business Development, Accounting & Information Security departments, and is a Managing Director of SCG Partners, a middle-market private equity fund focused on diversifying and expanding Safeguard Properties’ business model into complimentary markets.

Joe has been in a wide variety of roles in finance, supply chain management, information systems development, and sales and marketing. His career includes senior positions with McMaster-Carr Supply Company, Newell/Rubbermaid, and Procter and Gamble.

Joe has an MBA from The Weatherhead School of Management at Case Western Reserve University, is a Certified Management Accountant (CMA), and holds a bachelor’s degree from The Ohio State University’s Honors Accounting program.

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AVP, High Risk and Investor Compliance

Steve Meyer

Steve Meyer is the assistant vice president of high risk and investor compliance for Safeguard. In this role, Steve is responsible for managing our clients’ conveyance processes, Safeguard’s investor compliance team and developing our working relationships with cities and municipalities around the country. He also works directly with our clients in our many outreach efforts and he represents Safeguard at a number of industry conferences each year.

Steve joined Safeguard in 1998 as manager over the hazard claims team. He was instrumental in the development and creation of policies, procedures and operating protocol. Under Steve’s leadership, the department became one of the largest within Safeguard. In 2002, he assumed responsibility for the newly-formed high risk department, once again building its success. Steve was promoted to director over these two areas in 2007, and he was promoted to assistant vice president in 2012.

Prior to joining Safeguard, Steve spent 10 years within the insurance industry, holding a number of positions including multi-line property adjuster, branch claims supervisor, and multi-line and subrogation/litigation supervisor. Steve is a graduate of Grove City College.

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AVP, Operations

Jennifer Jozity

Jennifer Jozity is the assistant vice president of operations, overseeing inspections, REO and property preservation for Safeguard. Jen ensures quality work is performed in the field and internally, to meet and exceed our clients’ expectations. Jen has demonstrated the ability to deliver consistent results in order audit and order management.  She will build upon these strengths in order to deliver this level of excellence in both REO and property preservation operations.

Jen joined Safeguard in 1997 and was promoted to director of inspections operations in 2009 and assistant vice president of inspections operations in 2012.

She graduated from Cleveland State University with a degree in business.

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AVP, Finance

Jennifer Anspach

Jennifer Anspach is the assistant vice president of finance for Safeguard. She is responsible for the company’s national workforce of approximately 1,000 employees. She manages recruitment strategies, employee relations, training, personnel policies, retention, payroll and benefits programs. Additionally, Jennifer has oversight of the accounts receivable and loss functions formerly within the accounting department.

Jennifer joined the company in April 2009 as a manager of accounting and finance and a year later was promoted to director. She was named AVP of human capital in 2014. Prior to joining Safeguard, she held several management positions at OfficeMax and InkStop in both operations and finance.

Jennifer is a graduate of Youngstown State University. She was named a Crain’s Cleveland Business Archer Award finalist for HR Executive of the Year in 2017.

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AVP, Application Architecture

Rick Moran

Rick Moran is the assistant vice president of application architecture for Safeguard. Rick is responsible for evolving the Safeguard IT systems. He leads the design of Safeguard’s enterprise application architecture. This includes Safeguard’s real-time integration with other systems, vendors and clients; the future upgrade roadmap for systems; and standards designed to meet availability, security, performance and goals.

Rick has been with Safeguard since 2011. During that time, he has led the system upgrades necessary to support Safeguard’s growth. In addition, Rick’s team has designed and implemented several innovative systems.

Prior to joining Safeguard, Rick was director of enterprise architecture at Revol Wireless, a privately held CDMA Wireless provider in Ohio and Indiana, and operated his own consulting firm providing services to the manufacturing, telecommunications, and energy sectors.

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AVP, Technology Infrastructure and Cloud Services

Steve Machovina

Steve Machovina is the assistant vice president of technology infrastructure and cloud services for Safeguard. He is responsible for the overall management and design of Safeguard’s hybrid cloud infrastructure. He manages all technology engineering staff who support data centers, telecommunications, network, servers, storage, service monitoring, and disaster recovery.

Steve joined Safeguard in November 2013 as director of information technology operations.

Prior to joining Safeguard, Steve was vice president of information technology at Revol Wireless, a privately held wireless provider in Ohio and Indiana. He also held management positions with Northcoast PCS and Corecomm Communications, and spent nine years as a Coast Guard officer and pilot.

Steve holds a BBA in management information systems from Kent State University in Ohio and an MBA from Wayne State University in Michigan.

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Assistant Vice president of Application Development

Steve Goberish

Steve Goberish, is the assistant vice president of application development for Safeguard. He is responsible for the maintenance and evolution of Safeguard’s vendor systems ensuring high-availability, security and scalability while advancing the vendor products’ capabilities and enhancing the vendor experience.

Prior to joining Safeguard, Steve was a senior technical architect and development manager at First American Title Insurance, a publicly held title insurance provider based in southern California, in addition to managing and developing applications in multiple sectors from insurance to VOIP.

Steve has a bachelor’s degree from Kent State University in Ohio.