A recent conference tackled some tough issues facing mortgage servicers and offered guidance on maintaining compliance from compliance and legal experts.
Operational considerations for a servicer’s enterprise-wide compliance management system and minimizing non-compliance risks were two high-priority topics at the American Conference Institute’s Second Bank and Non-Bank Forum on Mortgage Servicing Compliance, held last month at the Adolphus Hotel in Dallas.
With the majority of presenters and conference attendants being compliance officers and outside legal counsel, all participants were looking for updates and best practices for regulatory compliance, most of which went into effect on Jan. 10.
During the Meeting Operational Demands Associated With Increased CFPB Supervision of Loan Servicing Transfers session, co-presenter Charles Beveridge discussed areas for loan servicing transferees to focus in order to mitigate their regulatory risk.
Knowing the seller, or transferor, and the seller’s products, increasing due diligence prior to purchase, having a comprehensive acquisition strategic plan and workflow and employing a robust training program for the acquisition and customer service teams were specific items the Prospect Mortgage vice president and associate general counsel highlighted as items that need to be worked out at the operational level.
“If you get the loans, you have to harmonize what the previous servicer did with your system and reflect that they match and they marry up,” Beveridge said. “The biggest trigger that we all should have, or at least as in-house counsel, is to really understand the consumer complaints and have tracking along with them.”
Venable LLP partner and former Consumer Financial Protection Bureau enforcement attorney Allyson Baker took a detailed look at the recent SunTrust Mortgage Inc. settlement as a case study to discuss enforcement trends, joint-action suits, monetary penalties incurred and causes of action arising in connection with these matters. Baker also highlighted the unfair, deceptive or abusive acts or practices statute and the CFPB’s authority for preventing UDAAP.
“So far in the mortgage servicing space, if you look at SunTrust, that is what the CFPB has used,” Baker said. “It’s used its UDAAP authority.”
Jason Miller, general counsel for Select Portfolio Servicing Inc., and Justin Bradley, corporate counsel for Resurgent Capital Services LP, led the Right-Sizing Your Servicing Operations for the ‘New Normal’ — Implementing the Most Effective Enterprise-Wide Compliance System for Your Company and Best Methods of Testing the Procedures, Practices and Policies You Have In Place session.
Miller said a compliance officer should look at three main areas — operational size, portfolio and organizational structure and reporting — when mapping out the best compliance management system for that company.
According to Miller, Looking at the size of operations would help servicers determine the adequate number of resources needed for effective compliance management. Taking a portfolio inventory would help servicers understand regulatory requirements unique to their business, and clarifying organizational structure and reporting methods would help servicers identify what system makes the best sense for achieving compliance management goals.
“The critical part of this is management has to be clued in on compliance,” Miller said. “They have to be a willing participant in the compliance process.”
For Bradley, establishing three lines of defense was a best practice for mortgage servicing compliance.
Setting up a culture of compliance through policies and procedures, internal and management controls and risk assessments were some key areas Bradley outlined under business controls, his first line of defense for a servicer.
With risk management as the second line of defense, Bradley suggested focus areas that included training potential witnesses, establishing regulator relationships and developing a change management process.
As well, call monitoring, vendor risk management and internal compliance scoring were some areas highlighted that fell under the internal audit umbrella, which was Bradley’s third line of defense.
In Lender Placed Insurance: Managing Regulatory Risk and Factoring in Recent LPI Class Actions, the three-person panel consisted of Jennifer Gray, attorney and shareholder at Greenberg Traurig LLP; O’Melveny & Myers LLP Partner Elizabeth McKeen; and BSI Financial Services Executive Vice President, General Counsel, Chief Compliance Officer and Secretary Jordan Dorchuck.
The panel reviewed current lender-placed insurance practices and recent class actions lawsuits to determine what servicers should know to avoid regulatory risk.
According to Gray, disputed lender-placed insurance practices included commissions received for insurance placed on a borrower’s account, backdating insurance coverage and issuing duplicate coverage when a borrower was already covered under another policy.
As well, excessive coverage amounts and tracking fees also were disputed practices. Despite these disputes and some claims surviving early litigation stages, Gray pointed out that federal appellate courts have not yet deemed lender placed insurance practices as unlawful.
“You really have to think about what might be perceived as unfair, deceptive and now, abusive when thinking about compliance “Gray said. “Most complaints that are surviving are UDAAP type of complaints.”
