FHFA inspector general examination rattles mortgage servicing
A report from the FHFA Inspector General criticizing servicers and Freddie Mac for their failure to report escalated mortgage servicing complaints, startled the servicing space and the GSE Thursday.
Freddie Mac said it's now working with servicers and the FHFA to implement recommendations set out in the inspector general report and it takes those concerns seriously. Still, the GSE felt it needed to defend its position, given the role its played in helping distressed borrowers in the past several years.
"Working together with our servicers, we have helped more than 785,000 distressed homeowners avoid foreclosure since 2009," a spokesperson for Freddie said.
The IG report finds that mortgage servicers dealing with Freddie-backed loans may have fallen short in reporting escalated complaints. This could impact how the servicing of agency loans are viewed in the future, said Diane Pendley, managing director with Fitch Ratings and an analyst who reviews servicers.
Escalated servicing complaints generally relate to issues of fraud or regulatory violations brought by borrowers. The inspector general report found fault with FHFA, Freddie and GSE loan servicers, suggesting too many loans were serviced to have no complaints analyzed and reported by all three parties. The FHFA relies on self-reporting from the GSEs on situations such as these.
"In today's environment everyone wants to make sure they are crossing their t's and dotting their i's," Pendley said.
Complying with the reporting of escalated servicing complaints seems like something that should be easy to do, she added.
Going forward, Pendley says compliance with the reporting of escalated complaints is something she would potentially look for when dealing with servicers who have non-agency loans since "they have shown they are not (necessarily) doing it for the GSE product."
For servicers involved in the massive transfer of loans or servicing rights, Pendley says the acquiring servicer needs to evaluate the new portfolios carefully and allocate staff to work with borrowers appropriately, but she does not see this slowing down the massive transfer of loans or MSRs.
Steve Horne, CEO and President of Wingspan Portfolio Advisors, said his firm spent the past three years focusing on how to deal with escalated servicing complaints. But, he admits, Wingspan's efforts were not necessarily emulated.
"We are generally aware that the standards in the industry are not where they should be," Horne told HousingWire. He added, "It’s not easy. We work closely with our clients to be able to do this. It is working very effectively, but it is a very complex process involving work flow systems, training, in-line reviews and quality checks."
It’s also not cheap and requires the hiring of additional personnel to handle escalated complaints well and comply with the 30-day resolution deadline. Horne sees even more focus on compliance in the future since the entire servicing space continues to transition into a "personal high-touch business and not the commodity process that it evolved into over the past decade or so."