The Consumer Financial Protection Bureau has altered the regulatory climate for banks, credit unions and non-depository financial institutions alike.
Few areas have felt pressure from this new-age agency more than mortgage servicing. Familiar tales, from the housing boom to the housing crisis, reported frivolous servicing practices, including robo-signing, lackluster documentation procedures, and most notably, a failure to provide notice of foreclosure.
The subsequent legislative pushback gave us the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB, and a myriad of new mortgage servicing regulations.
Some servicing entities have fared better than others under the CFPB microscope. Following a well-publicized CFPB settlement in 2012, many large financial institutions agreed to enhance their regulatory compliance mechanisms, particularly within their loan servicing departments.
Recently, the settlement monitor reported that a number of financial institutions involved in the settlement had thus far complied with settlement terms, while other entities holding mortgage servicing rights have had difficulties adjusting to the new regulatory environment.
A number of these entities have fallen victim to an all-too-common practice in today’s mortgage environment—not properly monitoring their subservicers. And while these institutions may not have directly committed any servicing violations, they will nonetheless remain liable for their subservicer’s infractions.
For those entities holding MSRs or maintaining servicing oversight responsibilities, this heightened risk of liability can mean devastating due diligence and monitoring costs. In addition, in order to remain compliant, general entity-level knowledge or maintaining of procedures that are “technically accurate” is no longer sufficient.
Entities must be able to effectively implement regulatory requirements into their day-to-day business processes and functional implementation of regulations, including proactive measures to address changes in the legal and regulatory landscape. Ideally this should be in a manner permitting profitability and growth.
Whether the entity is ensuring its own or a subservicer’s CFPB compliance, reviewing processes and procedures, performing servicer operational assessments or transactional, loan-level testing executing functional regulation implementations, it is clear that the compliance burden of these measures can significantly drain revenue streams, as well as pull diverting resources away from operations, growth, and investment.
So what are viable options for those with oversight responsibility?
Many of these entities are now seeking the expertise and capabilities offered by third parties.
For example, at the transactional and operational level, third parties can provide efficient and cost-effective solutions for addressing compliance concerns for clients, banks and non-banks. Third party experts can assist clients by developing solutions for functional implementation of federal, state, and investor regulatory requirements, proactively monitoring industry and regulatory landscape, and providing examination preparation and support.
CFPB compliance professionals can align servicing and sub-servicing practices with regulatory expectations, enabling servicers and their subservicers, to re-commit resources to production.
If you are a servicer looking to stay abreast of and prepared for new regulations, the most cost-effective and efficient route may be seeking the services of a third party. Additionally, to ensure adherence to compliance requirements, make sure that third party can operationalize near-to-real term the ever-changing regulatory landscape.
