Back to school with new rules from the CFPB
Will you be ready for exams? The Consumer Financial Protection Bureau (CFPB) didn’t take a summer break this year. In fact, mortgage servicers once again face added scrutiny and regulation as most of the country’s households send their children back to school. This scenario makes it vitally important to be prepared for your next CFPB examination, which requires auditing current processes and safeguards to ensure issues do not compound themselves as additional borrowers exit forbearance.
There is a mounting list of areas that should be double-checked based on CFPB findings. Not that these items are not already on your radar, but you can rest assured that at a minimum, the CFPB will be targeting these existing problem areas when conducting future mortgage servicing exams. At Quality Mortgage Services (QMS), our goal is to assist you in navigating ongoing regulatory change with confidence. Consider our services a back to school essential as you check out this summer’s CFPB announcements.
New Final Rule = Amended Servicing Requirements
The CFPB kicked off the summer by issuing a final rule designed to reduce the possible onslaught of foreclosure activity as nearly a million homeowners are queued as the exit forbearance. Assignment one for the CFPB is to safeguard borrowers while the Coronavirus Aid, Relief, and Economic Security (CARES) Act protections expire. This includes bridging possible communication and process gaps while the industry transitions to remaining federal and state protections, in addition to loss mitigation alternatives to foreclosure. In order to address CFPB concerns the new final rule includes five amendments designed to further borrower and servicer collaboration at this important juncture.
Imposing “temporary special COVID-19 procedural safeguards” that must be cleared before initiating the first notice or filing for foreclosure.
Allowing “certain streamlined loan modification options,” extending to incomplete applications, to eligible borrowers that have suffered hardship due to COVID-19.
Ensuring “timely and accurate information to borrowers about their loss mitigation options during the current crisis,” including “live contact” and additional borrower communication criteria.
Clarifying the “reasonable diligence obligations” that a servicer must meet when communicating with borrowers that are in forbearance, especially those approaching the 30-day mark preceding forbearance exit.
Specifying a clear definition of COVID-19 hardship as “a financial hardship due, directly, or indirectly, to the national emergency for COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020.”
Supervisory Findings = Violations of Law
At the end of June, the CFPB released their summer Supervisory Highlights, summarizing findings from their examinations of covered institutions, many of which the CFPB calls out as violations of law. This new guidance digs deeper into loss mitigation processes, addressing the most egregious errors such as, late fee waivers, additional fee charges and streamlined modification options. They also touched on escrow analysis, albeit not directly tied to COVID-19. The top three findings were as follows:
Dual tracking violations – Breaches of Regulation X whereby servicers delivered first notice or filing of foreclosure even though the borrower’s loss mitigation application was “facially complete” and should’ve therefore moved away from foreclosure.
Misrepresentation regarding foreclosure timelines – Servicers formally communicated dates on which foreclosure would be initiated and yet commenced foreclosure prior to the communicated date, accounting for a deceptive practice.
Failure to consider PMI termination date during annual escrow analysis – I Escrow analysis calculations included private mortgage insurance (PMI) payments for the entire year, even though the payments would stop prior to the full 12-month period based on loan-to-value (LTV) threshold changes.
Metrics That Will Appear On Your Next Exam
Last month the CFPB published Mortgage Servicing COVID-19 Pandemic Response Metrics: Observations from Data Reported by Sixteen Servicers. This report piggy-backed some of the issues raised in the CFPB Supervisory Highlights, as well as obviously falling on the heels of expanded COVID-19 requirements detailed in the final rule. What’s really important here is the fact that the data points used to cultivate a meaningful summary of large servicer activities will invariably be used in examinations going forward. The key data metrics that the CFPB utilized are as follows:
Call metrics – The Average Speed to Answer (ASA) and Abandonment Rates (AR) were used to determine how frequently borrowers disconnect before speaking with a loss mitigation representative.
Pandemic forbearance exit metrics – The delinquency status of borrowers post forbearance exit was used to assess the quality of borrower assistance provided during the transition out of COVID-19 forbearance.
Delinquency metrics – Measuring overall delinquency rates was determined meaningful in evaluating the composition and risk profile of a servicers portfolio.
Borrower profile metrics – The lack of consistent data on borrower race and limited English proficiency (LEP) was considered indicative of fair lending risk and potential violation.
Pandemic assistance enrollment metric – Homeowner applications and programs were evaluated from an acceptance and rejection perspective, utilizing denial rates across loan types.
Be sure to complete your homework as the CFPB will most certainly be checking these areas of new requirements, examination findings and data metrics, regardless of the size of your organization. Take a moment and plan today for our industry’s next semester, as well as your next examination.
Considering that mortgage servicers will continue to be besieged by loss mitigation regulation and activities, finding a partner to help navigate change and ensure the “i’s” are dotted and “t’s” are crossed is critical to your success. Managing productivity, efficiency, costs, volume and your core business, demands your full attention, especially amidst ongoing pandemic impact and record levels of volume. Quality Mortgage Services offers extensive QC, audit and industry expertise, uniquely designed to help you maintain your proprietary advantage, amidst the rapid evolution of our industry. Contact us today at www.qcmortgage.com to find out how our proven track record, exclusive boutique approach, and innovative technology will help you ace your next exam… and more!