PERSON OF THE WEEK: The mortgage industry is beset by well-intentioned – and potentially calamitous – regulations, and the servicing sector has been feeling the brunt of rulemakings recently. To get an appreciation of what servicers should expect down the road, MortgageOrb this week checked in with Jason Marx, Wolters Kluwer Financial Services' vice president and general manager of mortgage and indirect lending.
Q: Acting Comptroller of the Currency John Walsh recently suggested that the hodgepodge of new mortgage regulations – both those concerning the broader housing market and those specific to servicing – may trigger unintended consequences when taken together. How concerned should servicers and regulators be that the numerous rulemakings will result in heterogeneous sets of standards?
Jason Marx: It's difficult to predict how the various new rules will interact and what unintended consequences may be triggered as a result. Only one thing is certain: The Dodd-Frank Act, combined with other major regulatory reform, is about to bring dramatic change to the way mortgage lenders and servicers do business. The good news is that servicers can still prepare now to minimize the impact to their business.
Lenders and servicers should start by thoroughly assessing their existing compliance and risk management programs, including documentation. The strain of the changes will increase costs and impact profitability, so it is important that servicers have platforms that can quickly and effectively adapt to each new regulatory challenge thrown their way. It follows through with making certain their programs can help them manage compliance, operational and financial risks proactively, holistically and efficiently across their organizations.
Q: Fannie Mae and Freddie Mac are in the process of making their delinquency-management guidelines more consistent. What kind of effect do you believe this will have on the servicing industry?
Marx: It will put further cost pressure on servicers, who are already dealing with a massive velocity of regulatory change. Many of the new rules are being put in place to address identified problems in the servicing of loans, primarily attributed to the unprecedented volume of delinquency, modifications and foreclosure actions. The new delinquency-management guidelines underscore the need for servicers to have the proper internal policies, procedures and servicing documentation in place to make sure they remain in compliance with all Fannie Mae and Freddie Mac lending program requirements.
Servicers also need to make sure they have knowledgeable staff members who are thoroughly educated on compliance requirements, particularly those tied to loss mitigation and foreclosure processing. This requires ongoing training and instruction to help staff stay on top of the latest lending program guidelines. And servicers must put controls in place to make certain staff members fully comprehend the guidelines and make adhering to them part of their everyday duties when it comes to servicing these loans.
Q: In April, 14 of the largest federally regulated servicers were hit with consent orders mandating certain process and policy changes. On top of that, regulators and state attorneys general appear to be eyeing more servicing policy changes. Of the requirements that have been either imposed or rumored (e.g., single point of contact, eliminating the dual track of loss mit and foreclosure), which do you think will be the most difficult for servicers to implement?
Marx: These changes will generally alter the way that many servicers operate. The stakes for non-compliance have now been raised, and the high-volume, low-touch models that had largely been in place will need to be redesigned, which will add cost, complexity and risk. Requirements such as single point of contact are going to require significant workflow and platform investment, as well as human capital investment, as the knowledge required to manage processes like loan modification, foreclosure or bankruptcy were normally handled by different departments on specialized systems. Â
It's understandable if servicers are overwhelmed by and frustrated with the complexity and cost of complying with regulatory and internal policy and procedure requirements. After all, the servicers that survive the current economic weakness, and ultimately do so profitably, will be the ones that have the lowest cost of production on their portfolios. It's critical, therefore, for servicers to make compliance with both as efficient as possible.
Q: Regulators recently pushed back the public-comment period for their proposed MBS risk-retention rules. Are there any aspects of the proposed rules that you believe need to be changed?
Marx: The risk-retention rules will have a material impact on the way that real estate finance is conducted in the future, so I do think it's good that the comment period has been extended, as it will give all stakeholders involved time to provide regulators with additional feedback before the rules are finalized. The rules are about reforming the model for securitization and as a regulatory compliance provider, we make sure that our customers have the tools to manage risk – compliance, operational and financial – more effectively and transparently across the enterprise. As these risk-retention rules are finalized, we will react and respond to make sure our customer have the solutions to do that.
