Mortgage Servicers Must Adapt to New Regulatory Realities


BLOG VIEW: At the onset of the pandemic, mortgage and consumer regulators relaxed the supervision and enforcement of servicers’ compliance with certain requirements that gave servicers time to adjust to the constraints caused by the pandemic.

The regulatory agencies’ flexibility, however, has ended. On Nov. 10, 2021, regulators issued a joint statement declaring that flexibility is no longer warranted, as servicers have had sufficient time to adjust their operations. While the regulators recognize that servicers still face ongoing challenges, regulators will apply their respective supervisory and enforcement authorities to address any noncompliance or violations of mortgage servicing rules.

Renewed regulatory scrutiny means servicers must have plans in place to update their operations to manage the uncertainty caused by the majority of the 1.25 million homeowners exiting their forbearance plans. Regulators are focused on ensuring borrowers have the time and opportunity to make informed decisions, striving to avoid a repeat of the last industry crisis in 2008. To achieve this, regulators are adapting their supervision approach and continuing to review and revise mortgage servicing rules to provide COVID-19 specific protections. Homeowners do not have the option to choose their mortgage servicer, so regulators view their scrutiny and oversight as imperative to protect homeowners in the current environment.

Mortgage servicers must prepare for increased regulatory activity. To satisfy regulators, servicers must make necessary improvements when it comes to their personnel, processes and technology. Mortgage servicing operations and operating models must be analyzed and updated. It’s essential that servicers develop a plan to comply with the current regulatory environment and be prepared to quickly adapt to new mortgage servicing rules. 

Giving Mortgage Servicers the Flexibility to Adapt

Performing analysis to identify, strategize and implement necessary changes to avoid potential regulatory risks and issues while maintaining business as usual operations may be an overwhelming burden for a servicer’s workforce. This could be resolved by identifying, hiring and onboarding personnel with the necessary expertise, but doing so creates a new set of human resource challenges. Not only would hiring new staff eat up valuable time, money and human capital, there’s the problem of what to do with all the new hires once the temporary labor need subsides. 

Partnering with a consulting firm to add needed personnel enables mortgage servicers to quickly augment their staff while maintaining business as usual. 

The present challenges servicers face create an opportunity to review operations and update operating models. Servicers can benefit by bringing in consultants, as these professionals can identify bottlenecks and take corrective action.

Ensuring Compliance with Future Directives

Developing the right strategy for the optimal future state requires specialized skills to analyze current operations and devise a path forward which incorporates updates to people, process and technology. Servicers should not bear the burden of maximizing their response to these required tasks without guidance from consultants who specialize in business analysis and strategy.

While the analysis and strategy process is ongoing, servicers will need to simultaneously develop an effective change management strategy. This requires developing training materials that their employees can easily understand to ensure compliance with new directives. Effective communication is imperative and requires coordination across several resources internally and externally. A communication plan needs to address responses to inquiries from regulators, ensuring all the necessary checks and balances are properly documented and ready to provide upon request. Servicers could also turn to consulting firms to create a comprehensive go-forward change management strategy that coordinates training and communication to ensure their employees, contractors and vendors are all on the same page.

Updating operating models and effectively implementing the changes requires managing a multitude of resources and coordinating of a wide variety of efforts to provide the optimal solution. Without recent and relevant experience managing such an intricate web of initiatives, servicers are likely to make errors, which cause delays and negatively affect the bottom line. Consultants provide the requisite knowledge and experience from an objective viewpoint, helping servicers develop and maintain best practices. The additional responsibilities often distract management from its core business, thus outsourcing to consulting firms allows servicers to focus on their primary objectives throughout the transformation process.

Servicers have made a lot of adjustments during the past two years, but the repercussions from the pandemic continue. Regulators are actively warning servicers to prepare for increased supervisory and enforcement actions – and they are on record that they will continue to review and revise mortgage servicing rules. Now is the time for servicers to start preparing. Consulting firms have the experience and expertise to support servicers as they overcome the challenges that lie ahead.

Zachary Ross is a senior consultant with CAPCO, a sister company of Wipro Opus Risk Solutions.

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