Servicing View from the C-Suite: A Conversation with Gwen Muse-Evans
Gwen Muse-Evans is President and CEO of GME Enterprises, a management consulting firm in Chevy Chase, Md., that provides risk management, operations management, strategic support and housing finance advisory services to corporate, nonprofit and government clients.
Prior to GME Enterprises, Muse-Evans was Senior Vice President and Chief Risk Officer for the single-family business at Fannie Mae where she provided risk management, oversight and monitoring of the $2.8 trillion mortgage portfolio, comprised of 18 million loans. She was also responsible for policy development and approval of Fannie Mae’s Selling and Servicing Guides, which established national eligibility standards for the secondary mortgage market. She was at Fannie Mae from 2001 until 2014, through the most-recent economic and housing crisis.
Muse-Evans currently serves on the Board of Managers of LoanCare, a ServiceLink company, and the Board of Directors of the L.E.E.P to College Foundation, is a faculty member of the American Bankers Association School of Risk Management, a Certified Enterprise Risk Professional and a certified Project Management Professional.
MBA NEWSLINK: Historic single-family origination volumes and forbearance levels set the stage for 2020. How have loan servicers been adapting to meet the juxtaposed challenges of new transaction volume adding new business as well as asset management tasks for existing portfolios?
GWEN MUSE-EVANS: 2020 was a perfect storm for mortgage servicers and there is now a spotlight on servicing, like never before. We have had record mortgage volume, for the past few years, driven by historically low interest rates, which resulted in record levels of new servicing business While continuing to keep the trains running, servicers had to pivot early in the year, in response to the COVID-19 pandemic, to manage stay-at-home orders for their own organizations while also ensuring safe physical operations for staff that needed to continue to come into the office. At the same time, servicers have been responding to the CARES Act and moratoriums to provide relieve options to borrowers impacted by COVID-19.
I am impressed with how nimble many entities have proven to be in responding to these significant challenges. In my observation, servicers demonstrate a genuine desire to assist borrowers and be responsive. Despite the volume challenges, servicers have dedicated staff and resources to implement process efficiencies and enhance customer-facing tools. For example, many servicers have updated their digital capabilities and client service lines to include self-serve options that are user-friendly and provide access to information as well as the ability for borrowers to make elections for relief. They are able to do so without needing to wait in a long phone queue to work directly with a servicing rep. Servicers are capacity-challenged themselves, so these borrower-facing accommodations have really helped to avoid delays and bottlenecks.
NEWSLINK: How do you envision the landscape for compliance evolving in 2021?
MUSE-EVANS: While mortgage origination volume is not forecasted to be as high as 2020, 2021 still promises to be another strong year. Mortgage bankers face heightened compliance risks simply due to the sheer volume that entities have had to manage while also trying to come up with solutions to address staffing needs. I’ve participated in several industry conferences and forums over the past few years that have promoted the use of process automation and/or digitization to enhance loan quality and manage compliance risks. I firmly believe this is critical for mortgage bankers to achieve the efficiencies needed to maintain strong loan quality and compliance in the current circumstances.
Not only will heightened risks continue, due to record volumes, but I anticipate that regulatory scrutiny will intensify in 2021.
We’ve also heard some rumblings about GSE buyback activity, although those seem to be quieting down.
Finally, we’ve seen a few recent high-profile regulatory actions from the Consumer Financial Protection Bureau and Department of Justice related to mortgage servicing, that caught our attention and provided a reminder of the many risks of regulatory and compliance errors. These actions resulted from activities and mistakes made several years ago, however, should still be viewed seriously for potential scrutiny to come, particularly on servicing activities.
All said, those entities that have made investments in process and technology enhancements, even while balancing the need to focus on managing record volumes, will be better positioned to effectively managing regulatory compliance, and other operational risks.
NEWSLINK: Are there risk management hot topics that mortgage bankers should be aware of as we prepare to enter 2021?
MUSE-EVANS: The two risk management topics that I would highlight are third party risk management and integrated risk management.
Use of third-party service providers is at a record high and growing across the industry. Focus on third-party risk management of suppliers will continue to be important. Although lenders are extremely capacity constrained, they need to make sure to have oversight and monitoring protocols in place to ensure that entities completing business or services on their behalf meet performance and service expectations and do not create financial, operational or reputational risk. It is a good practice to review the terms of supplier agreements, from time to time, to ensure they are appropriate for your evolving business and that covenants are enforceable. When third-party suppliers fail to meet service or performance requirements, lenders need to apply sanctions and remedies, up to and including termination, if corrective actions aren’t implemented by the supplier.
While some in the mortgage industry have not adopted formal Enterprise Risk Management frameworks for their organizations, it is a great time for the mortgage banking industry to embrace the ERM principle of integrated risk management to enhance risk management and governance practices. I am still seeing very siloed organization structures where risk leads are involved in committees and conversations related to mortgage and process risks, however, may not be included in discussions focused on determining the strategic direction of the company. Having an organization with an integrated approach for risk management where risk professionals work closely with strategic business leaders to achieve business objectives, is a leading practice.
NEWSLINK: A lack of affordable housing has been and continues to be a challenge facing the country. What do you see as the opportunities and challenges in this area as a new administration gets settled into Washington and the GSEs continue to evolve?
MUSE-EVANS: The good news is, affordable housing imperatives exist with the Administration (current and future) and are part of the mission of the GSEs. So, identifying affordable housing solutions will continue to be key goals for these institutions in 2021.
Unfortunately, the lack of affordable housing, for both renters and homebuyers, is a challenge that has gotten worse and is likely to worsen further due to the economic impact of the COVID-19 pandemic. There are multiple root causes to the problem including lack of affordable housing stock which has caused housing demand to outpace supply, disincentives for the development of affordable housing, ineffective zoning laws and regulations and a widening wealth gap that causes some low-to-moderate families to pay a disproportionately high percentage of their income for housing.
Solutions to this challenge will require policies and investment, from both the public and private sectors, in programs to overcome the pervasive challenges that exist. We’re going to need broad collaborations to identify urban, rural and suburban areas to establish affordable housing and/or incorporate mixed-income developments. Collaborative efforts are needed to overcome some of the roadblocks caused by lack of access and inability to qualify for housing faced by many families. Again, this affordability challenge is likely to become tougher as we experience the fall-out of COVID-19 which is disproportionately impacting low-income populations and families of color.
On the bright side, we are ripe for innovation around redefining what affordable housing stock looks like. For example, we have seen advances in the design of more affordable homes including micro and small house floorplans, manufactured/modular housing as well as sustainable, green multifamily housing architecture designs. Decisions about where to introduce more affordable housing must be made as part of long-term infrastructure planning and neighborhood revitalization to build up neighborhoods and create communities that flourish–communities that have access to shopping, commerce and modes of transportation.
Finally, there is an education component that must be promoted to ensure that both renters and potential new homeowners have the financial literacy knowledge and access to information to be successful in accessing and retaining housing in the long term. There are many great counseling and financial literacy programs available to low-to-moderate income borrowers. These go hand in hand with providing products and underwriting flexibility to close the homeownership gap and create opportunities for low-to-moderate income families to build wealth. Housing is one of the best ways for families to build wealth and for this country to close the existing wealth gap.
NEWSLINK: What has impressed you the most about the mortgage industry as we’ve come together to respond to the pandemic? Is there any room for improvement or areas you think could simply use more focus going forward?
MUSE-EVANS: I have been incredibly impressed with the response to the crisis in terms of how quickly entities were able to shift to remote operations. In most cases, the transitions were seamless with few hiccups. This speaks to having good technology frameworks and business continuity/resiliency planning. I have also been really pleased with the responses to the moratoriums, even before the CARES Act was finalized, to respond to this historic public health crisis. I witnessed really great industry collaboration, even before the government stepped in with the CARES Act. I really felt some lessons from the 2008 financial crisis, in terms of the need for collaborative approaches, were applied early this year.
Now let’s talk about where there’s room for improvement.
We need to improve our data quality, data management and data governance practices. Mortgage bankers are exchanging millions of critical and sensitive data elements daily, which makes adhering to prudent standards for data intake and management extremely critical. As we think about both the primary and secondary mortgage markets, and the amount of data that is exchanged for mortgage transactions, the possibility that data may be incorrect or compromised presents significant downstream risk. We need to improve our hygiene around data usage and be aware of data used by third-party service providers.
On a separate but related note, I would mention homelessness, which is a problem that seems to be becoming invisible with this pandemic. We have been extremely fortunate to be in an industry that has thrived this year. As an industry, we’ve gotten better at providing communication around mortgage relief and loss mitigations options However, there are some extreme situations of hardship in all of our communities and I’d like to see how we can extend even further to provide more financial support to these families who may be facing temporary or even permanent homelessness.
There are families that have incurred major medical expenses due to COVID-19. Many, many people have had their sources of income significantly decreased, if not wiped out altogether, due to job losses which has caused them to lose their home. There are also families who are struggling to rebound following multiple natural disasters this year. An increasing number of families and individuals are facing homelessness and shelters are bursting at the seams.
The many civic, non-profit, and faith-based organizations that provide supportive services to help these families are struggling and do not have the resources to meet the growing needs. If existing moratorium and forbearance relief measures are not extended, the homelessness numbers will likely go up even more. Some mortgage bankers have established philanthropic foundations to support those in need–MBA’s Open Doors Foundation is a great example, but there’s more work to do. I implore anyone who can to donate to these or other worthy causes. Please do what you can to help!
NEWSLINK: We continue to hear about staffing challenges to find experienced people to meet the record mortgage volumes. What more can organizations do to respond to this need and build the pipeline of experienced mortgage professionals? What career advice would you give to young professionals just entering the mortgage industry or early in their careers?
MUSE-EVANS: Mortgage bankers have begun to experiment with different staffing models to meet the current challenges associated with the shortage of experienced operations mortgage professionals to manage the record high volume levels.
In many cases, lenders are restructuring traditional processor and underwriter roles into less complex sub-functions. Junior and entry-level staff members can be trained to perform these sub-functions relatively quickly, which is a great solution to the immediate need to tackle the high volume, while building the pipeline of operations staff.
Many lenders have also expressed a commitment to address the lack of diversity that has been an industry challenge. These new staffing approaches present an excellent opportunity to hire entry level staff and develop them to meet the capacity challenges while building a workforce that reflect the diverse markets we serve.
A few words of advice that I would offer to young professionals just starting in the mortgage business is to be adaptable and continue to seek opportunities to go to the next level. The industry is cyclical by nature and ripe for evolution. Technology will be the disruptor of the traditional way of doing business, as manual processes continue to fade. Young professionals, and everyone in fact, need to have a handle on technology, be flexible and look for innovative ways of doing business. Digitization will continue to help eliminate manual processes and the evolution toward machine learning and artificial intelligence will reduce the need for some of the current entry-level jobs.
By being adaptable and seeking new opportunities young professionals will be able to grow their careers in a way that aligns with the evolution of the industry.
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