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Now that the Jan. 10 deadline for the Consumer Financial Protection Bureau’s (CFPB) new mortgage rules has passed, servicers continue to assess where they have been, where they are and where they are headed in the months ahead. And while most of the new CFPB requirements are fairly straightforward - and servicers worked very hard to meet the January deadline - questions remain with regard to specific aspects of the CFPB regulations. Until those questions are answered, servicers are doing their best to meet compliance in the areas that are still unclear.

The CFPB appears to be interested in the thought processes servicers used in developing their approach to meeting the new regulations. As a result, many servicers are documenting how they arrived at their decisions, especially in situations where the rules are not explicit. For example, when there are unique loan conditions or characteristics that make billing a challenge under the new rules, servicers must still make every effort to comply. However, it is not always clear how to meet the rules in certain situations.

To illustrate, if an adjustable-rate mortgage (ARM) loan borrower has prepaid his or her mortgage payments up to the time of the next scheduled interest rate change date, but the servicer does not yet know what the interest rate will be at the point of the next change, what data should the servicer put on the required monthly statements? Or if a borrower has a mature loan with a final principal balance balloon payment coming due at a future date, what information should the servicer put on monthly statements because there will be only one final payment? There is currently no guidance from the CFPB on how to address these unique circumstances.

The CFPB is also likely to revisit the requirement for statements for loans that are part of a bankruptcy action. In October 2013, the bureau stated that servicers did not have to send statements for loans in bankruptcy at this time, but that they would readdress periodic statements for bankrupt mortgages in the coming months.

Once those requirements are solidified, servicers will likely have new data requirements for periodic statements. In addition, charged-off loans will require a periodic statement as long as there is still a lien held on the property. This presents challenges for servicers as they have not traditionally billed these accounts, and only limited data may be available.

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Assessing consumer acceptance

Another issue that must be evaluated is consumer reaction to, and level of acceptance of, the new mortgage statements that began going out in January. For many borrowers, the information contained in their mortgage loan statement will be similar to what they have seen in the past, but the format will be different. For other borrowers, some information will be new, especially for loans that have reached the 45th day of delinquency. In addition to the periodic billing statements, new data has also been added to the ARM adjustment notice, and an entirely new initial ARM adjustment notice is now required.

The goal of the CFPB and servicers is to minimize any borrower confusion associated with the terms and conditions of mortgage loans, and the intent of the new periodic statements and ARM notices is to ensure that borrowers are very clear about their mortgage loan provisions and payment obligations. Even so, change of any kind can cause confusion, and the industry will have to assess consumer acceptance of the new mortgage statements, as well as ensure that the intended results envisioned by the CFPB have been achieved.

 

Managing requests, compiling files

Another area that some servicers are still working to operationalize is their approach to managing requests for loan servicing files. These requests may come from borrowers or their authorized representatives, legal authorities such as those involved in a bankruptcy, or regulatory bodies. While still being determined, the servicing file will include information such as loan data, transaction history, system notes, and copies of loan documents and correspondence. While servicers can assemble this information for an account, the unknown part of the equation is what kind of volume to expect in terms of the number of servicing file requests they may receive. These requests could represent a very time-intensive process, but without a read on the potential volume, it is difficult for servicers to nail down the resource and procedural plan to respond. However, because servicing files often contain many years of detailed and complex information down to the transaction level, some servicers plan to assist requestors by trying to understand what type of information they are actually looking for. Once this is better understood, the servicer can also offer a more focused delivery of information that will be more useful to the borrower.

 

Document and adjust

The CFPB has said that it expects servicers to make a good-faith effort at compliance. Those who have concerns associated with the unique idiosyncrasies of certain loan types or situations that remain unaddressed in the rules must make educated decisions and document their rationale for possible review by CFPB auditors.

This year is also going to bring an opportunity for consumers to react to the new statements, and servicers are certainly expecting questions to arise. As they do, documenting the types of questions borrowers ask will be valuable feedback for the servicer and for the CFPB, which then may provide additional guidance as needed.

Servicing organizations will be working with the new processes and procedures they established to meet the January CFPB deadline - and identifying and documenting areas that could be made more effective or efficient. As their organizations adjust to not only the differences in the way they operate, but the shift in their relationship with borrowers, it is likely that more change will occur.

It is also likely that the industry will see additional guidance and clarification from the CFPB as the bureau observes how well the rules address the goal of transparency - and servicers will need to stay flexible in order to adjust as required.

The lead-up to the January 2014 deadline for the new CFPB rules was an intensive effort by servicers to not only meet the deadline, but change the way they think, operate and react. There were also ancillary impacts all across their operations in terms of culture, new skills required and the elimination of other long-established approaches to the work of mortgage loan servicing.

Still, the work is not done, and as the CFPB partners with servicers to understand where things stand, it is likely that there will be adjustments to where things are headed. The servicing industry has already proven that it has the commitment and the ability to make changes when they are needed, all in the interest of a stronger and more transparent future. s

 

 

George FitzGerald is senior vice president, product management, servicing solutions and technology division, for Black Knight Financial Services (formerly Lender Processing Services). He can be reached at exec.author@lpsvcs.com

Regulatory Compliance

Post Deadline: Questions Remain

By George FitzGerald

Following implementation of the CFPB’s new servicing rules, certain regulations are still murky.

 

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