Under Pressure

Under Pressure

WHY MORTGAGE SERVICING PROBLEMS ARE ON THE UPTICK

By FELECIA BOWERS, HOMEOWNERS FINANCIAL GROUP

Almost 12 months into this virus we are starting to see an uptick in servicing problems reported in the press, including CFPB consent orders and alleged violations against some of the country’s largest servicing entities. If the larger servicing houses are struggling to be compliant, I can imagine that a smaller servicing enterprise is being crushed under the plethora of federal regulations, state rules, GSE and agency requirements, and the temporary amendments in each of these areas due to COVID. They are operating with fewer resources but have the same, if not more, pressure.

FEELING THE PRESSURE

Servicing pressure is not left to servicing enterprises either. About two months ago I received a phone call from a customer threatening to sue because he did not like the company who was taking over the servicing of his loan. This individual’s experience with the prior loan servicer and the reason for his anger was based on one thing: they took too long to get the settlement agent the payoff statement. For the previous 5-plus years there were no problems, so his biased opinion was based on one simple aspect of the relationship.

My investigation revealed they met federal and state deadlines and details for issuing the payoff statement but that was not acceptable to him. Trying to reason or explain the process to him was futile as he would not stop his obscenity laced tirade. When he finally took a breath, I simply advised that he could take whatever legal action he thought was necessary, but we were 100 percent compliant with federal and state laws. I offered to send him references to federal and state code which he did not want. I also offered my services if he has a problem down the road, which he also did not want.

He would settle for nothing less than us repurchasing the loan and selling it somewhere else. Not gonna happen! It has been

two months so hopefully things have settled down. But his angst and anxiety over something so simple was a wake up call for me reinforcing that the struggle is real and won’t be going away anytime soon.

NEW YEAR, MORE PRESSURE

The new year will usher in additional pressure on servicing platforms and people in general. Businesses are still closed, more are closing, states have extended lockdown protocols, and the pandemic rages on and has morphed with a new version of the virus. As I write this article in December, the federal government has signed a bill providing an additional stimulus stipend and resurrecting weekly enhanced federal unemployment benefits for millions of American still on unemployment. The benefits will pay $300 per week on top of the state benefits for up to an additional 11 weeks. Unfortunately, this amount is half of the original $600 weekly payment that the CARES Act sent jobless Americans through late July.

December 30th was the deadline in which someone could request a distribution from their 401K due to COVID. Forbearance plans that were originally initiated Q2 or later in 2020 may have sunset or are about to sunset. The agency guides were allowing plans in the 90–180-day range in anticipation that some sense of “normal” would be on the horizon. FHFA and HUD announced an extension on foreclosures and evictions but right now, that extension is only through January 2021.

Bear in mind that this forbearance guide impacts federally backed mortgages. JUM-

BO customers or those with a private transaction do not have specific options available and must obviously work with their servicing agents for relief assistance.

A NOTE ABOUT RELIEF…

As a servicer, with relief plans in process, you could likely be faced with the need to discuss an exit program with a customer. Can the customer reinstate the loan back to the original contract terms? Servicers may need to re-evaluate the customers qualifying debt to income ratios to see if they can afford to make the payments based on the original contract terms PLUS any deferred amounts under the forbearance plan.

If they have been living on credit cards, depleted their savings, and are still unemployed, additional options may need to be negotiated/discussed. In some cases, a permanent modification may be needed to establish a payment that the customer can afford now and into the future. Modifications can take the form of an interest rate reduction, loan term extension, or capitalizing the amount in arrears, aka assessing the amount the customer needs to pay to become current and adding it to the principal amount of the loan. Sometimes, all three options may be needed.

WHAT ABOUT CREDIT REPORTING?

Credit reporting is an issue during any workout program and after the customer has exited the workout program. The GSEs and the VA allowed servicers to suppress negative credit reporting of a forbearance plan if the customer was current on their monthly payment prior to entering into the forbearance plan. The CARES Act provided the industry with additional and, at times, conflicting requirements by adding a new section to the FRCA, Section 623(a) (1) of which the intent was to prevent servicers from reporting customers as delinquent simply due to a hardship related to COVID.

In brief, this new section allows the servicing agent to report accurately after the proclamation of the national pandemic, March 27, 2020, and ending 120 days after the national pandemic emergency terminates. If the servicer enters into a plan, the customer was not delinquent and the customer makes their payments as agreed in the plan documents, the servicer must report the debt as “current”. But, if the customer was delinquent before the plan started, the servicer must maintain the delinquent status while the plan is in effect. If the customer brings the delinquency current, then the servicer reports the loan as current. How many customers will be disputing their delinquency status before the COVID proclamation hoping for a change in that credit score?

LOAN PRODUCTIONS AND CLOSINGS

Loan production and closings have been trending at some of the highest levels we have seen in years, which all runs downhill to servicing. If you have not already done so, now is the time to re-evaluate the quality assurance program (preventing a problem) and quality control program (detecting a problem) with your servicing platform. The Agencies and GSEs provide general oversight requirements in their seller/servicer manuals which should be reviewed. Does your program need a little more TLC?

QUALITY ASSURANCE

The QA process will test controls for monetary transactions such as reconciliations, and custodial accounts and are beneficial in identifying systemic issues that have or could develop. A comprehensive QA program can help a company identify servicing costs and profit per loan, whether one work unit is overwhelmed by ascertaining the number of loans serviced per employee, streamline delinquency servicing costs, or identify areas where there is an inconsistent application of policies and procedures exposing the company to additional risk. QA can also aid in the review and segmenting of complaints which will help identify what, if any, additional training may be needed with staff to prevent QC problems.

A comprehensive servicing QC program should function in much the same way as it does for the origination process, detecting a singular faux pas or a systemic problem. The QC process will test multiple, randomly selected transactions for:

• Servicing transfer compliance. Did both parties notify the customer and all interested parties such as the insurance company, MERS, flood monitoring, and county tax collector for escrowed accounts?

• The loan boarding process

• Billing statements are accurate and have the correct disclosures

• Disclosures in general including payment coupons and booklets

• Escrow processing and periodic analysis

• QWRs, complaints, and inquiries

• ARM changes (using the right index) and notification requirements

• Fees and charges

• Remittances for PMI, property taxes and insurance are timely and accurate

• Tax and flood service monitoring

• Forced-placed insurance

• Compliance with the SCRA for individuals called up to active duty and that interim period when they return

• Modifications and forbearance plans

• Loan payoffs are handled timely

• Default collections, phone calls, TCPA, FDCPA, FCRA. Listen in on collection phone calls for prohibited statements, threats, abusive language by staff.

• Handling bankruptcies, deed-in-lieu, short-sales, key surrenders, foreclosures

• Deceased customers or customers with POAs

A CALL FOR COMPASSION

Worthy of repeating from the September article on Servicing is the need for compassion. Customers calling for help are stressed, anxious, confused, depressed and who knows what else is going on in their life. We have been under the unprecedented impact, limitations, and strain of this pandemic for over nine months. Treat your customer with the same compassion and interest as you would want to be treated!