New Regulations and Mortgage Document Management: What it Means for Mortgage Servicers
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New Regulations and Mortgage Document Management: What it Means for Mortgage Servicers
CT Representation
New Regulations and Mortgage
Services Document Management:
What it Means for Mortgage Servicers
In response to economic crisis, Congress passed the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (the “Act”) to
provide safeguards for consumers, as well as oversight for certain
financial service practices. Of particular relevance to the mortgage
industry, Title X of the Act established the CFPB and authorized it to
supervise and regulate certain consumer financial services companies
and large depository institutions and their affiliates, as well as
enforce many federal consumer protection laws. Since its creation,
the Bureau has paid considerable attention to the regulation of
mortgage servicing practices as a result of the public outcry related
to the “robo-signing” scandal and certain foreclosure practices.
While the regulation of the mortgage servicing industry will continue
to evolve and impact the way lenders and mortgage servicers interact
with borrowers, the CFPB’s recent regulations have provided insight
into the servicing environment the CFPB wants to establish.
On January 17, 2013, the CFPB issued its mortgage servicing final rules (the
“Rules”), which will take effect on January 10, 2014. The Rules clarify various
provisions of the federal Truth in Lending Act and the Real Estate Settlement
Procedures Act and are designed, in part, to facilitate successful interaction
between borrowers and mortgage servicers. Richard Cordray, the Director of
the CFPB, has emphasized that the Rules are backed by the full supervisory and
enforcement authority granted to the CFPB , so it is important for any business
engaged in mortgage servicing activity or other related businesses to fully
understand the obligations the Rules impose on mortgage servicers. While the
Rules cover a broad range of mortgage servicing activities, including monthly
mortgage statements and disclosures for adjustable rate mortgages, some of
the most important requirements contained in the Rules deal with mortgage
servicers’ management of documents concerning mortgage obligations and
servicers’ interactions with borrowers, particularly those revolving around loss
mitigation.
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Under the Rules, mortgage servicers will be required to retain records for one
year after the date a mortgage loan is discharged or the servicing of such loan
is transferred. This does not necessarily mean that hard copies of such records
must be kept, rather, the records may be retained in any method that permits
the servicer to accurately reproduce and easily access the records. Further,
the Rules require servicers to maintain documents and data in a manner that
allows the servicer to compile the documents and data into a servicing file
within five days. Under the Rules, the servicing file shall include: (1) a schedule
of all transactions credited and debited to the mortgage loan account; (2)
a copy of the security instrument; (3) servicing notes reflecting borrower
communications; (4) reports of data fields related to a borrower’s loan using the
servicer’s electronic systems; and (5) copies of information and documents the
borrower has provided in relation to loss mitigation requests and the resolution
of servicing errors. Importantly, this requirement applies to documentation and
information created after January 10, 2014, the effective date of the Rules.
The Rules require servicers
Additionally, in apparent response to the Bureau’s conclusion that major
to implement policies and
procedures to streamline mortgage servicers failed to make necessary investments in resources and
borrower communications infrastructure, the Rules require servicers to implement policies and procedures
and the servicing process to streamline borrower communications and the servicing process. The
Rules allow servicers to independently determine the specific policies and
procedures and methods used to implement such policies and procedures.
Although servicers may retain their existing policies and procedures if they are
appropriately tailored and designed to achieve the objectives of the Rules, we
suggest that servicers review their policies and procedures to ensure they are in
compliance with the Rules. Moreover, it is absolutely necessary for servicers to
ensure that their business practices follow their stated policies and procedures.
Mortgage servicers must institute policies and procedures designed to
ensure access to accurate information and documents concerning mortgage
loans. These policies must permit the servicer to provide borrowers with
accurate information in a timely manner, investigate and respond to borrower
complaints, facilitate the provision of accurate and current information
and documents to owners and assignees of mortgage loans concerning loss
mitigation actions, and submit documents and court filings for foreclosures that
reflect accurate and current information. Moreover, the Rules require policies
to ensure oversight of third-party vendors, which also includes policies to
provide and facilitate the sharing of documents and information. To accomplish
these objectives, servicers should review the functionality of their document
management systems to make sure they are compatible with the purpose of
these policy requirements. For example, the Bureau suggests that a servicer’s
ability to properly investigate and promptly respond to borrower requests
and complaints is dependent on the accuracy of the servicer’s records and its
employees ability to access such records.
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The Rules require mortgage servicers to institute policies ensuring that
information and documents are provided to the appropriate entity in the event
of a servicing transfer. In particular, it is the transferring servicer’s obligation
to ensure that all information and documents concerning the mortgage loan in
its possession or control are transferred to the new servicer in a timely manner
and in a form that enables the new servicer to comply with its obligations
to the owner of the mortgage documents. Such documentation would not
only include the mortgage documents and information related to payment
history, but also includes information concerning the status of loss mitigation
discussions, any loss mitigation agreements, and any analysis concerning the
potential recovery of a non-performing mortgage loan. The official comments
also explain that such transfers may be done electronically; however, the data
must be able to be promptly incorporated into the new servicers’ systems in a
manner that allows the servicer to identify all necessary documents. Further,
the Rules require policies and procedures that allow the new servicer to identify
documents and information that may not have been transferred by the prior
servicer. The policies must provide that the new servicer will attempt to obtain
such documents and information from the prior servicer prior to requesting
information from the borrower. In order to implement appropriate policies, as
well as comply with other aspects of the Rules, servicers should review how their
document management systems organize documents to ensure the information
is maintained in a manner that would allow for, not only the creation of a
servicing file within five days, but the wholesale transfer of all documentation a
new servicer would need to avoid any delay or undue hardship to borrowers.
Finally, servicers must also implement policies and procedures to respond to
borrowers’ requests regarding error resolution and for documents. Specifically,
servicers must respond to written requests by borrowers seeking resolution
of potential errors in the borrowers’ account. If a servicer determines that no
error has occurred, the servicer must be able to provide borrowers with the
documents that support its determination that no error has occurred. In order
to properly investigate and respond to error resolution requests, it is important
for servicers to maintain accurate records that are easily accessible. Further,
servicers must respond to a borrower’s written request for information with
limited exceptions. With respect to requests for information concerning the
owner or assignee of a mortgage loan, the servicer must provide the borrower
with the information requested within 10 days. For all other information, such
response must be provided within 30 days. Given the necessity for servicers to
respond to borrower requests within these short timeframes, it is even more
important for servicers to maintain accurate and accessible records to avoid any
delays in responding to borrowers.
Page 4 www.ctliensolutions.com • info@ctliensolutions.com • 855-428-5773white paper - Mortgage Servicer Regulations
The Rules should also be read in conjunction with the CFPB’s Mortgage Servicing
Supervision and Examination Manual (the “Manual”). Pursuant to Title X of
the Act, the CFPB is given the responsibility to examine financial institutions
for compliance with Federal consumer financial law. While the Manual is
not binding law, the Manual acts as a field guide for examiners to use during
examinations. With respect to the preparation of a response to the CFPB’s initial
information request related to an examination, the Bureau strongly prefers that
documentation be provided in electronic form. Additionally, while the Manual
does not require servicers to provide information or documents to examiners
in electronic form, the Bureau’s examiners are required to maintain copies of
all documentation reviewed for their final report and typically request that
certain information be provided electronically. In reviewing mortgage servicers,
examiners will review records related to (1) servicing transfers made with in the
last year, (2) payments and fees, (3) consumer complaints, (4) maintenance
of escrow accounts and insurance products, (5) credit reporting, (6) loans in
default, bankruptcy, or in collection, (7) loss mitigation, and (8) foreclosure.
Servicers should consider whether their document management systems will
allow the Bureau to easily review and obtain copies of the documents necessary
for their review. Most importantly, servicers should re-evaluate their existing
document management systems to ensure that those systems meet their
current needs and are capable of easing their regulatory burden in the future.
Central is the ability As a result of Dodd-Frank, related other regulatory initiatives and industry-
to streamline business driven best practices, mortgage servicers are increasingly instituting policies and
processes through the procedures that ensure completeness and quick availability of mortgage loan
intelligent application
document and data.
of technology, imaging
and workflow mapping Numerous industry solution providers have advanced the quality and availability
and process automation of mortgage data, analytics and availability to source and retrieve mortgage
tools
documents from any jurisdiction in the United States. With the goal of
creating true end-to-end transparency, data and document access – critical to
compliance with Dodd-Frank -- these solution providers offer the additional
benefit of making mortgage servicers more flexible, cost effective and better
prepared to address market dynamics.
An effective vendor has deep-domain expertise, technology expertise and a
customer-focused delivery model. Central is the ability to streamline business
processes through the intelligent application of technology (such as Web-based
document platforms with easy to-navigate user inputs and interfaces), as well as
integration, imaging and workflow mapping and process automation tools. Not
only do these critical elements make a servicing operation more efficient and
profitable, this evolution demonstrates a commitment to creating the servicing
center of excellence the CFPB is seeking as a result of the robo-signing scandal.
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For example, with a solution provider, a mortgage servicer can:
• Receive complete information, including recording reference data (dates,
instrument numbers, recording book), beneficiary, assignments and legal
descriptions
• Access millions of document images in repositories or county jurisdictions
• Obtain a wide variety of data elements, including ownership, mortgage,
assignment, parcel, sales value, property lien position and flood zone
intelligence
With Dodd-Frank, if servicers don’t respond quickly to an audit request with
clean, well-organized files, examiners are likely to apply even more scrutiny.
Critical is the need to demonstrate that everything was done correctly when
originating or servicing mortgage loans. When documentation is not readily
available, disorganized files can lead to audit fines, lost productivity and costly
buybacks. Rapid response to audit requests and documented chain-of-custody
demonstrate strong policy adherence.
In addition, a vendor solution can serve as an electronic bridge between
submitters of real estate documents and county offices, enabling documents to
be prepared, submitted, recorded/rejected, indexed and returned with speed and
efficiency.
In preparation for the new changes as a result of Dodd-Frank, servicers would
benefit greatly from working with servicing platform providers to ensure
their solution and workflow supports all of the necessary fields to generate
documents that will be fully compliant under the new guidelines. Additionally,
servicers should work with their solution partners to verify that these solutions
will be implemented in sufficient time. By acting now, servicers can avoid
panicking in December and make the upcoming transition as smooth as possible.
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