Sponsored Content From ACES Quality Management: Adapting to the Changing Terrain of Mortgage Servicing
Amanda Phillips is the executive vice president of compliance at ACES Quality Management, where she is responsible for expanding the breadth and depth of ACES’ compliance and regulatory solutions. She possesses more than a decade of financial services experience, holding executive-level roles in legal and regulatory compliance. Reach her at aphillips@acesquality.com.
Coming off a year of thinning origination volume, soaring home prices, rising interest rates and low housing inventory, it’s safe to say 2023 was a challenging year for lenders. It was a year in which mortgage applications hit their lowest level since 1996. Fast forward to today; home purchases are projected to be up 15% compared to 2023. The outlook and borrower sentiment for 2024 is refreshing, to say the least.
While Jerome Powell announced three rate cuts in 2024, Fannie Mae’s projections for 2024 are still modest, and lenders’ quality control processes must stay sharp. Industry forecasts for the current year vary dramatically; expectations for existing home sales range from a seasonally adjusted annual rate of 4.21 million to 5.07 million by the end of 2024 and a range of 680,000 to 840,000 for the rate of new home sales.
The mortgage industry is rightfully taking in the good news, but the terrain of mortgage servicing is fickle. Capacity and operational costs are expected to remain a challenge for lenders this year. Maintaining the health of mortgage servicing rights will likely continue to be lenders’ bread and butter.
The Consumer Financial Protection Bureau (CFPB) has actively underscored the significance of compliance with the CARES Act and servicing regulations, generally, especially in areas such as fair lending, fair servicing, and forbearance. CFPB scrutiny is growing alongside the increased use of artificial intelligence (AI) and complex credit models. Looking ahead, these policies are expected to gain even more prominence.
The rapidly changing regulatory environment in mortgage servicing demands a proactive and technology-driven approach from lenders. Fortunately, quality control (QC) is a crucial area where lenders can see immediate returns from easy-to-implement audit and compliance technology built for the modern mortgage lending operation. Competitive audit technology facilitates self-auditing, identification of issues, and remediation of findings. It is crucial for lenders to review and test their policies and procedures, ensuring adherence to protocols and staying abreast of and managing day-to-day changes.
Maintaining QC begins with regularly assessing the integrity of servicing portfolios and staff to ensure they adhere to all relevant servicing rules, guidelines and regulations. In putting their best foot forward to build quality control lines of defense, financial institutions (FI’s) can maintain loan quality and mitigate risk. The CFPB’s priorities signal the importance of self-assessment and remediation. Lenders are advised to regularly review and update operational/compliance procedures and quality control frameworks, conduct self-assessments to test those updates, and, of course, remediate findings.
To mitigate and manage inherent servicing risks, your risk management team needs to identify your institution’s specific risk areas. From there, your internal audit team should ensure the proper processes and procedures are in place to address those risks. Subsequently, the QC team is responsible for verifying, from a transactional perspective, that your organization aligns its actions with its declarations and takes necessary measures regarding associated risks. Your QC teams need current audit technology to reliably stay on top of regulatory changes and communicate effectively with other internal stakeholders. Traditional methods, such as manual tracking and spreadsheets, make this process all the more prone to mistakes. This is the baseline for building QC defense.
With established standards, servicers should examine their existing policies and procedures to ensure compliance. Suppose adjustments must be made to align these with current rules and regulations. In that case, those changes need to be documented so that servicers can show evidence of self-identification and self-correction in the event of an examination. ACES Quality Management was the first to incorporate Fannie Mae’s updated guidelines into ACES Quality Management & Control software to ensure clients could audit to the latest standards and guidelines.
Servicers must also audit employee performance against documented policies and procedures to identify any areas of failure or weakness. The results are then documented, including corrective action taken, changes made to policies or procedures, and plans for retesting to ensure compliance in the future. Lapses in controls during loan origination inevitably make their way down to servicing, forcing lenders to remediate or repurchase loans because of one failure that was not handled upstream, predictably affecting the bottom line. If you are servicing in-house or have a subservicer, make sure you’re up to date on all of the findings on the lending side and take loan sampling seriously – 10% of a random sample is not enough. Servicers need to identify pockets of risk and proactively correct them diligently.
Consumer telephone interactions are an essential aspect of servicing that is easy to overlook from a quality perspective. No matter how many controls are in place, the need for human interaction, especially as it relates to collections and loss mitigation efforts, can result in an increased risk of non-compliance. A robust Call Monitoring program is critical to identifying where improvements are needed to protect your organization from regulatory and reputational risk. ACES Quality Management has a pre-built, configurable Call Monitoring audit pack that enables servicers to quickly and seamlessly establish an additional layer of protection within your QC program.
The mortgage servicing landscape requires a forward-thinking and technology-driven approach from lenders and servicers to ensure compliance, fairness, and resilience in the face of regulatory challenges. Due to the cyclical nature of the mortgage industry and evolving requirements and regulations, continual recalibrations in servicing are essential to uphold loan quality and mitigate risks. To ensure your QC is of the highest quality, download ACES’ free playbook: Three Lines of Defense for Maintaining Servicing Loan Quality.
Hear the latest mortgage servicing news, including CFPB Supervisory Highlights and specific 2024 compliance expectations and predictions on Feb. 14, 2024, when we partner with the team at Ballard Spahr for another ACES QC Now webinar. Register today!
(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)
