Bob Caruso of ServiceMac LLC: Servicing Strategies in a Heightened Compliance Environment
Bob Caruso is CEO of ServiceMac LLC, Fort Mill, S.C., a wholly owned subsidiary of First American Financial Corp. To learn more about the company, visit firstam.us/about-servicemac.
In January, the Consumer Financial Protection Bureau released its updated Mortgage Servicing Examination Manual, which increased compliance complexity and added more rules for servicers to adhere to moving forward.
The Manual outlines the information needed for examiners to evaluate servicer policies and procedures, so examiners can determine if servicers are complying with laws and proactively identifying risks for lenders. Without a full understanding of these new rules and a process to implement changes, servicers may not meet CFPB expectations and risk further scrutiny, which could lead to negative audit results, consumer harm and fines.
Over the past two decades, regulatory and investor guidelines have become much more nuanced. In addition, maintaining on-going compliance to the rules and audit guidelines has been challenging given servicers’ day-to-day responsibilities. Servicers have had to become more agile and look for ways to update processes and implement changes quickly to reduce the risk of non-compliance.
As a servicer, I have seen many procedural changes implemented but have found that careful review of examination and guideline updates and establishing a comprehensive methodology to apply the changes has been critical to long-term success in meeting and exceeding auditor expectations. Another critical component is measuring the effectiveness of changes by tracking audit results and examining areas that did not perform as expected. Finally, to promote transparency a servicer should report the findings and actions taken to clients and investors to instill confidence in the servicer’s policies and procedures and demonstrate the servicer’s dedication to achieving positive audit results.
Below are examples of steps that can improve client, borrower, investor, and regulator transparency and reduce the likelihood of compliance issues and negative audit results. This measured, disciplined approach provides a solid foundation to improve compliance as rules evolve.
- Maintain a seasoned team of mortgage compliance experts that have a broad range of skills, experience and independence. This may be one of the most important things to focus on if your organization is struggling to remain compliant or has had negative audit results in the past. As a servicer, you should create a group of legal, compliance and operational leaders and risk professionals who all have deep industry relationships and knowledge and work as a team, rather than siloed. Through a comprehensive internal process, this team should be responsible for reviewing all updates from the CFPB and other regulators to confirm an understanding of the new guidelines while analyzing current processes and quality assurance rules for any adjustments needed to ensure compliance.
- Define the update requirements and implement changes. This step involves translation of the regulations and defining requirement changes into existing process and technology platforms. Servicers should establish an independent compliance team that works side-by-side with operational and technology leaders to define and then update the necessary processes and implement them quickly. At ServiceMac, we have addressed this by also creating a proprietary platform that includes a quality assurance rules engine. The proprietary rules are updated and refined continually by performing a comprehensive analysis of guidelines and requirements from the CFPB, numerous states, as well as each of the other agencies (Federal Housing Administration, Fannie Mae, Freddie Mac, HUD, the Department of Veterans Affairs and the Department of Agriculture). As regulations and servicer expectations continue to evolve, servicers should modify existing rules or create new ones to comply with guidelines and remain compliant.
- Auditing policy, procedures and platform updates – preparing for a potential audit. After implementing the required updates, it is essential to perform a comprehensive quality control audit of the changes to ensure the rules and processes are performing as expected. Over the last decade, servicing technology platforms have become responsible for much of this work, but it is crucial that a compliance and quality assurance team have processes in place to confirm updates are implemented and then perform as expected. Performing these audits on an ongoing basis validates compliance with regulations and guidelines. For the portfolios we subservice, ServiceMac leverages a proprietary quality assurance rules engine and built-in mock audit capability to perform this task daily on every loan in our subservicing portfolio in addition to established quality control testing. Our goal as an operational group is to ensure we are exceeding regulatory requirement standards. If a rule is not performing at any point during the subservicing process, it is flagged as a risk in our system and immediately addressed.
- Report internally and to clients. The final step should always be reporting results, with extensive data to provide full transparency, to the client. Strategies for evaluation, mitigation and measurement of portfolio risk should also be included to ensure portfolio compliance. The subservicer’s priority should always be on providing homeowners with the best servicing experience while meeting regulatory and investor requirements.
All servicers should be committed to ongoing investment in technology enhancement, transparency, compliance and customer support to provide superior mortgage subservicing. The importance of compliance and minimizing risk is paramount in today’s servicing environment and servicers can navigate all regulatory updates with confidence if the right internal protocols are put in place.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)