Although implementing new technology, adjusting periodic billing statements, re-training staff, and establishing new loss mitigation policies and procedures were among the biggest headaches servicers faced in preparing for the Consumer Financial Protection Bureau’s (CFPB) new servicing rules that went into effect on Jan. 10, several servicers say simply getting a plan in place was by far the most complex and time- consuming step.

“Just getting a plan in place was a significant part of the process,” Kevin Kanouff, president and CEO of special servicer Statebridge, tells Servicing Management. “We put a group of people in charge of this, and that’s all they did for the last six months. They came up with the plan for what each department had to do. Then they poked them once a week: ‘How are you doing on this, and how are you doing on that?’”

Kanouff says that during November and December, this team, dubbed the “vendor management group,” held weekly “CFPB implementation meetings,” during which each department had to report whether it had reached green, yellow or red status on each specific aspect of compliance - with green meaning that it had achieved compliance, yellow meaning it was making progress toward achieving compliance and red indicating that there was some sort of challenge or problem. The head of this compliance group, he says, was also required to provide regular updates to the company board of directors.

“[The board] wanted to hear and see that we had a plan - and that we were implementing that plan,” Kanouff says. “Because, as I’m sure you know, the CFPB rules stipulate that there be a direct relationship between the compliance team and the board.”

But getting that team into place was no easy task, Kanouff says. Not only did Statebridge have to hire new staff, it also had to pull existing staff off core tasks in order to develop a plan - which all servicers were required to develop, implement and keep on hand so that CFPB auditors can see specifically what companies are doing to meet compliance, and whether they are sticking to those plans.


“We’re not a giant servicer,” Kanouff says. “So, to have a completely separate, five-to-ten-person vendor management group, well, you just can’t do that when you’re a special servicer. Obviously, we have a vendor management team in place now - but for awhile there, we weren’t sure if we’d be able to get that infrastructure in place in enough time.”

Even larger servicers, such as Cenlar FSB, had a challenging time putting together an implementation plan that could address every aspect of compliance across every department in the organization.

“We started out a year ago and spent a lot of time trying to understand what exactly the requirements were - of course, there were some things that needed clarification along the way - and putting together a structure that would allow us to tackle each of the nine modules,” explains Dave Miller, senior vice president of business development at Cenlar.

This included a thorough review of the systems and processes already in place, so as to determine which aspects of compliance were already covered, and then determining what new systems and technology were needed in order to fill the gaps.

Miller says Cenlar already had an enterprise risk management program in place - and it was this team that handled all of the planning with regard to the CFPB rules. Within that risk management team, he says, the company established a new compliance team, headed by Greg Kuroda, vice president and assistant counsel. The risk management team, which comprises about 65 people, also includes a quality control team, as well as an audit group, Kuroda explains.

“Not all of them worked on this full-time - some are business leaders and managers [with other responsibilities],” Miller says, adding that the job of preparing for the new rules took some of these people away from their core day-to-day duties.

Like the other servicers, Kuroda says Cenlar began its “CFPB project” by first identifying all the affected departments.

“The main challenge was … we had to dedicate so much time to it,” he explains. “I’m sure it impacted other people’s jobs. There were a significant number of hours spent on this - probably more than most people were anticipating.”

Kuroda says for Cenlar, the majority of the planning and implementation process was handled in-house; however, “in the beginning, we did bring in outside counsel to confirm our interpretations and what we had in place. “That attorney was used occasionally throughout the project - but as far as consultants go, we didn’t use any,” he says. “But we did work with our vendors to make sure that we would feel comfortable with their level of compliance.”

Kuroda says one of the biggest challenges, which came right at the start of the process, was establishing “interpretations” of certain rules that were considered vague or not well-defined.

“One thing that’s still vague is the general servicing policies and procedures,” he says. “For example, what is a ‘servicing file?’ What is an ‘error resolution,’ versus an ‘information request,’ versus someone calling in to complain? Those are the types of things we had to work through to make sure we were all on the same page.”

In some cases, Cenlar’s compliance team had to reconcile its “interpretations” with those of its vendors to ensure that the same approach was being taken to comply with specific aspects of the rules.

Ralph Carrigan, executive vice president and chief operating officer for subservicer LoanCare (a Fidelity National Financial company), says his company had a chief compliance officer and two representatives in the legal department to head up its compliance efforts. This team, he says, appointed an “implementation group” in operations that “worked with all the various business units to ensure they were doing their part.” This implementation group was augmented by the company’s existing quality control group, which handled all the testing and auditing to ensure compliance was being achieved.

Steve Horne, president and CEO of special servicer Wingspan Portfolio Advisors, points out that most servicers already had plans in place outlining their policies and procedures - it’s just that those plans had to be updated and are now, in essence, codified into law because the servicer is now required to follow its own policies to a T.

“In the old days, you had policies that sat on a shelf that were maybe or maybe not kept up-to-date as the processes changed,” Horne says. “But now you have to have policies in place that you can demonstrate you are following. So, a lot of what we have been working on over the last 18 months or so is to augment our ability to be able to demonstrate that.”

Beyond the gargantuan task of establishing an internal compliance team and developing an overall plan for compliance, most servicers agree that implementing the required loss mitigation procedures was perhaps the second most time-consuming, costly and tricky aspect of preparing for the new rules.

“Of the nine modules [that comprise the CFPB’s servicing rules], the biggest impact was in the loss mitigation area - which makes sense, since it was the main thing [the CFPB] was after,” Carrigan says. “That’s where we really took the biggest hit, in terms of the amount of time - and cost - it takes to handle each interaction.

“We already had good turn times - many of the things the CFPB was after, we were already doing,” Carrigan adds. “It’s just all the extra documentation - the appraisal process and the second look - all of that required extra time and effort for implementation.”

Carrigan says getting the loss mitigation policies and procedures in place was a major undertaking because that particular set of rules covers “every decision, the entire waterfall - and getting the agents trained to the point where they are able to say, ‘I didn’t just select this workout; I covered every workout, it’s all documented and here the other 14 workouts I denied.’”

Making the process all the more arduous is the fact that the new rules require servicers to take a “second look” at every mod or refi that has been denied, to ensure that the reasons for denying are legitimate - and defensible under the new rules.

Carrigan says another big headache was reformatting all of the statements that are sent to consumers so that the forms include all the data and information that the CFPB now requires.

“Our vendor, Lender Processing Services (now Black Knight Financial), had to re-print and re-map all of the data - all of the history records,” he says, adding that this “was a big deal because customers in default previously were not getting statements.

“Now they are getting statements that show all the corporate advances - for things like property inspections and attorney fees,” he says, adding that because the statements now give borrowers this increased level of transparency, he was fully expecting to get deluged in customer inquiries and complaints regarding new disclosures, such as how much it costs to send someone to inspect a property.

“Frankly, I was shocked that so few additional customer questions or complaints came in after we mailed out the new statements,” he says. “We braced ourselves - we increased our call center staff by 20 percent, thinking there was going to be this onslaught of customer calls. But that hasn’t happened.

“This makes you wonder if anyone reads their statements anymore,” Carrigan adds. “In a way, it’s shocking that the CFPB went to such great lengths and all this effort to create all this clarity for the consumer - and yet the consumer doesn’t seem to care.”

Carrigan adds that some customers expressed surprise that their escrow account balance no longer appears on their statement.

“We used to have the balance of the borrower’s escrow account on the statement - but the new format by the CFPB doesn’t have your escrow balance,” he says. “We followed the CFPB’s template precisely, but because of the questions that have been coming back in, we’re going to add that back onto the statement - because our customers are asking us for it.”

Another area where servicers ran into some challenges was servicing transfers.

“As far as the servicing transfers go, there was a lot of work involved to make sure we got all the data [that is needed to accompany the loan files],” Carrigan says. “In our case, due to Cenlar’s rapid growth, it’s been a serious challenge. For example, this past month, we got two transfers, and because of where they were coming from, they couldn’t get all the data into the loan files in the required five days,” he explains. “So, we had to put a ‘stall’ into acquisitions, coming in the door, to ensure we got all the data that we needed to meet the CFPB’s regulations.”

One of the more simple challenges, in terms of meeting specified timelines, Carrigan explains, has been getting all the needed image files to accompany a transfer.

“We’ve always had a list of documents that we require [when handling transfers],” he says. “And in the past, we’ve sometimes had a hard time getting the images of the documents we need. In the past, those images would sometimes take two or three weeks to get here, but now, because of the new rules, we’re demanding that they arrive by Day Three - and it has caused some headaches. We won’t let a transfer happen if we don’t get those images within the specified time frame.”

Also adding to servicers’ workloads was the job of updating the adjustable-rate mortgage (ARM) letters that are used to notify customers of pending rate adjustments. Here, servicers faced a slew of new requirements - for example, interest-rate adjustments on ARMs have to be communicated at least 210 days, but not more than 240 days, prior to the first payment due after the first rate adjusts. They also have a 60- to 120-day time frame, before payment at a new level, to notify the borrower when a rate adjustment causes the payment amount to change. These are just two of many changes to how servicers notify borrowers of changes to their ARMs, and all of these changes need to be reflected in the written correspondence with borrowers.

“We only have about 6,000 ARM loans currently, but that number is increasing, and the new rules require us to significantly change the letters - and the timing of the adjustment notices - which has also taken considerable additional time and effort,” Carrigan says.

Of course, one of the larger jobs involved in preparing for the new rules has been updating the software and systems to ensure compliance. Several of the servicers SM interviewed say their loan origination system (LOS) vendor had challenges getting updates completed and was unable to roll out those updates until just days before the Jan. 10 implementation deadline.

“That definitely created some anxiety for us,” Kanouff says. “On the loan administration side, we were wondering if we were going to be able to comply with the CFPB rules just from a technology perspective. For us, as a special servicer, we have an LOS that is our LOS of record. So, we had to just kind of hope that our vendor would get their software update on time and that it would be correct. It was down to the wire - we got the update maybe 10 days before we had to go live with it, which didn’t give us much time to do the testing.”

Several servicers say certain aspects of the rules that were expected to create major headaches - such as the single point of contact rule and force-placed insurance requirements - were not as difficult to implement as they initially expected.

“Many of the things, like force-placed insurance, we were already doing,” Carrigan says. “We have a good partner in Assurant, so we had already met the requirements - not a big deal. We had to tweak one sentence in one of the letters. But for others in the industry, it was a big deal. They had to completely change their processes.”

Beyond all the specific new requirements that had to be met, Horne points out that perhaps the biggest change resulting from the new regulations is a complete sea change in not only how servicers handle default and loss mitigation, but how they view the servicing business, philosophically.

“The sea change is that the government is now in the business of ensuring that borrowers are treated with respect - and that the servicers and their strategic partners invest the time necessary to ensure borrowers reach their optimal outcome to match their circumstances,” Horne explains. “This governmental focus on the customer experience is something that hasn’t really been there, in terms of the history of the industry. And we’re ready for it.” s

Regulatory Compliance

Meeting The CFPB’s Implementation Challenge

By Patrick Barnard

Just how challenged were servicers in preparing for the CFPB’s new servicing rules?




































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