A new report outlines the progress mortgage servicers have made in complying with federal consent orders. Among changes implemented by the servicers are increased oversight and evaluation of third-party service providers, more internal controls for activities tied to the Mortgage Electronic Registration Systems and additional staffing and training to address some of the biggest areas of concern.
The country’s 14 biggest mortgage servicers agreed to consent orders with the Office of the Comptroller of the Currency and the Office of Thrift Supervision in April that required them to fix problems with foreclosure processing, correct failures in governance and the loan modification process, and compensate borrowers for financial harm.
The OCC released a report Tuesday that reviewed how the servicers have been carrying out the consent order requirements.
Servicers are required to improve oversight of third-party service providers, and their plans for this were submitted by July 13. The plans were accepted by the OCC in October.
Servicers said that they assessed risk tied to third-party activities to determine specific levels of oversight and activities. They also established new policies and enhanced due diligence.
Some servicers established oversight committees to monitor service provider activities. The committees established processes to ensure the quality of work by third parties and terminate underperforming on non-compliant third parties.
Procedures were created to track complaints about third parties and their performance. On-site audits are being scheduled and conducted to ensure ongoing performance quality. Some service providers such as attorneys and law firms will be periodically assessed for their performance and terminated when appropriate.
Contracts with third-party service providers have been updated to establish work standards.
The orders attempted to improve oversight of MERS and compliance with MERSCORP membership rules.
While specific actions vary among servicers, they include incorporating MERS into servicer’s third-party oversight programs, enhancing controls and standardizing processes for executing mortgage assignments by MERS certifying officers and establishing training and certification programs along with periodic assignments and endorsements.
The plans also include an increase in the number of servicing employees who are dedicated to oversight of MERS activities.
In order to improve management information systems used in mortgage servicing, some banks have consolidated servicing platforms, while others standardized and automated workflows for modifications and foreclosures.
“Substantive improvements have been made and will continue throughout the next year,” the OCC said of MIS.
Among actions being taken to reduce operational risks are the implementation of third-party audits and self evaluations as well as periodic assessments and the development of action plans. In addition, existing policies and internal guidance are being strengthened.
Some servicers are identifying individuals and groups accountable for compliance and operational risk. Additional training is being implemented in some cases.
In order to meet compliance requirements outlined in the orders, management and leadership changes were made at some companies, while reporting relationships were changed at others. Some firms increased the number of employees responsible for conducting audits and ensuring compliance.
In some instances, sworn document preparation was moved from outsourcing to in-house.
“As work continues to improve compliance controls across the servicers, the OCC expects the servicers to complete the implementation of new processes, policies and enhanced controls during the first part of 2012,” the report said.
The orders required servicers to hire independent firms to review their foreclosure actions between Jan. 1, 2009, and Dec. 31, 2010, to determine whether foreclosures were compliant with federal and state laws, if they happened when loans were current and whether any errors, misrepresentations or other deficiencies led the borrower to suffer financial injury.
Letters were sent beginning on Nov. 1 to more than 4 million consumers who might have suffered harm from foreclosures by the servicers during the period at issue, and they were advised to either visit www.IndependentForeclosureReview.com or call 888.952.9105 to file a claim.
