Two sessions at a mortgage servicing conference that addressed compliance with Consumer Financial Protection Bureau servicing rules and examinations were packed.
The children’s television show Pee-Wee’s Playhouse revealed a secret word that caused all the characters to “scream real loud” when someone uttered it. If the recent 2013 Mortgage Bankers Association Servicing Conference and Expo in Grapevine, Texas, were an episode of Paul Reubens’ creation, the secret word for making the mortgage servicing industry scream was compliance.
With the January 2014 deadlines set for servicer implementation of the CFPB’s final rules, servicing conference attendees flocked to the Feb. 21 afternoon sessions focused on what regulatory compliance meant for mortgage servicers.
“Over the last couple of years, this industry has become one of the most heavily scrutinized and heavily regulated industries in this country,” Inside the CFPB Audit: What We Know (To Date) About CFPB Audits of Servicing Organizations session panelist and Weiner Brodsky Kider PC Managing Director Mitchel Kider said.
During the session, Kider and three other panelists gave a closer, more detailed look at the CFPB audit examination process as additional chairs were added to accommodate conference attendees unable to find seating during the packed session. The panelists agreed the CFPB audit was transparent and advised affected servicers to consult the CFPB Supervision and Examination Manual-Version 2.0 for information on the audit examination process and how the CFPB supervised it.
Several session participants raised their eyebrows when they learned about the CFPB’s civil money penalties, which included up to $1 million per day for servicers who knowingly violated CFPB-identified issues for the company to remedy. Kider called this fine a game changer but said he believed the CFPB established this steep penalty to let servicers know the agency was serious about enforcing regulatory compliance.
“More than likely, the thing that’s going to happen during the course of an examination and after examination is that as a result of the findings you may get, the CFPB will identify and tell you that there are matters that require attention” Kider, who has sat in on CFPB audits, said. Kider identified these matters as repeat findings, significant issues requiring a company’s executive-level attention and lesser problems needing CFPB-identified corrective action.
Session panelists also revealed the CFPB’s main focus during an audit was the company’s ability to identify, protect and remedy consumer issues during a product’s or service’s life cycle, preferably early on in the process. Initially, the CFPB’s regulatory focus was on default servicing, but the new servicing rules also have the agency looking into other areas such as payment applications, adjustments to adjustable rate mortgages and escrow accounts.
Session panelist and Guild Mortgage Vice President of Compliance and Quality Assurance Lisa Klika gave advice and shared her company’s experience undergoing an earlier CFPB audit in the loan origination and servicing sectors. Klika said having a point person and, if possible, a backup person who are familiar with the CFPB’s examination process and who could handle the CFPB’s information requests would help make the audit process more efficient. She also advised servicing companies to take advantage of communication opportunities with the CFPB examiner .
“You’ll have the option of meeting the examiner in charge weekly to get a status of the examination, and you should absolutely take them up on that offer” Klika said. “You should set it as a time to ask any questions you may have or any concerns that you may have.”
Immediately following the CFPB servicing audit examination discussion was the Operating In A Patchwork of Servicing Standards session. MBA servicing conference attendees again filled the room and took pages of notes as presenters discussed where and how CFPB rules and compliance to those rules affected mortgage servicers. The panel also highlighted documentation as king when building a compliance framework.
“The direction comes down from on high that the CFPB wants to make sure that everybody from servicers to consumers to consultants to attorneys know what we’re doing so that we can do right by all, and some of the stuff isn’t very clear and will develop thoroughly over time,” session moderator and KPMG LLP Partner in Mortgage and Consumer Lending Advisory Kimberly Davis-Riffe said.
During his part of the panel discussion, Bank of America Home Loans’ Mortgage Policy and Counterparty Relations Executive Michael S. Malloy discussed four key areas where the CFPB’s final rules affect almost every mortgage servicer from an operational perspective — billing statement changes, ARM adjustment notices, single point of contact development and modification processes as four key servicing operations areas affected by the CFPB’s final rules. Each area represented organizational, structural and implementation issues for servicers, according to Malloy.
“When I think about it, we counted more than 300 unique requirements in the CFPB standards. So if you say, ‘the ones that say thou shalt x,’ there are more than 300 of those,” Malloy said. “Unless you’re a servicer of less than 5,000 loans you are required to comply with all 300 in the course of federal law, and there’s not really a choice left.”
The session also highlighted loss mitigation and force-placed insurance in escrow accounts as two areas the CFPB rules and other servicing guidelines, such as the National Servicing Standards or the California Bill of Rights, created both overlap and directly conflict.
Session panelist and Bradley Arant Boult Cummings LLP Partner Robert R. Maddox said complying with the different guidelines requires servicers to understand all the guidelines, review current practices to identify areas needing corrective action, find a way to test quality assurance and implement policies and procedures that adhere to all applicable guidelines.
“In most cases, you can comply,” Maddox said. “The question is whether you’re a glass full or glass half empty person.”