[Update 1: all sources made anon.]
The tension between regulators and those in the mortgage servicing space is colored by mistrust of motive, fear of overreaction, and the general worry that perhaps, in some cases, regulators don't fully understand the very industry under their aegis.
A panel at Information Management Network’s first-ever Residential Mortgage Servicing Rights conference on the effects of state and federal regulations began with an obvious point: it has been a tumultuous couple of weeks in the mortgage servicing space.
(Note: IMN asks for the conference to be off the record. With no exceptions, panelists are quoted but not named.)
The moderator started the discussion noting two key date since the start of 2014 – Jan. 10, when the Consumer Finance Protection Board’s mortgage servicing rules went into effect changing the landscape forever, and Feb. 6, when New York’s Department of Financial Services is reportedly putting an indefinite freeze on the $2.7 billion MSR deal between Ocwen Financial Corp. (OCN) and Wells Fargo (WFC).
But one panelist said the industry should calm down.
“The world did not stop spinning on its axis after Jan. 10,” he/she said mortgage servicers are not complaining.
Panelists in the industry weren’t nearly as dismissive.
“The new servicing protocols are very robust. If a borrower is complaining and it is not resolved to borrower’s satisfaction, it will get to a state regulator, particularly if dealing with modification and servicing transfers,” the panelist said.
“The CFPB emphasizes fair lending particularly with loss modification, but there is an emphasis on protected classes of borrowers, and you have to really make sure they are treated fairly and the same in servicing of mortgages in respect to the loss modification aspects of this,” he said.
The panelist said he wasn’t entirely convinced regulators at the CFPB and state agencies like the New York Department of Financial Services really understand the industry that they are trying to regulate.
“Sometimes you have companies who hold mortgage servicing rights who do not do their own servicing, and you have others doing all of the servicing soup to nuts. It’s not always clear,” he said. “Regulators need to know difference and I don’t think they do.”
Another panelist said that those in the mortgage servicing space need to change how they look at what they do so they can err on the side of caution.
“The model of servicing has changed from a production standpoint to asset management,” he said. “That’s the lens through which they are looking at this now and we should. We have to look at the loan and borrower through a different lens.”
Further, he said, it’s critical that servicers no longer look at vendors and partners as third parties.
“Servicers are a lot more careful now as they move through the pipeline, enagaging the borrower and keeping the same contact and protecting the asset,” he said. “A lot more is on the servicer now and you can’t look at partners or vendors as third parties. We’re risk management account partners. You have to go into policies and procedures in how they are trading, their internal staff, do they have all their eggs in one basket – you have to know. Your third parties are your eyes and ears but also part of your risk. You have to do due diligence.”
The first panelist agreed and went further.
“If you’re allocating a portion of your duties in loss mitigation or REO, the CFPB will hold you responsible for that third party,” he said. “You have to know they are complying with the law and treating your consumers fairly.”
One panelist said that the MSR space is a dynamic, changing market and the CFPB is feeling its way.
“Some are selling servicing rights and still doing all the servicing. Does the holder of the rights – what responsibilities do they have? Selling the right to collect advances – that’s new to us – is that a good thing or a bad thing and what potential risks for consumers are there? Or is it a benefit to consumers? I don’t know. It makes our job very interesting,” he/she said.
The panelists were asked if the landscape has changed for servicers after the activism at the NY DFS and in particular, after CFPB deputy director Steve Antonakes scolded and shocked the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo 2014 last month.
Other regulatory issues servicers have to be on guard for include in the practice of forced placement, panelists said.
“There are new protocals but you have state regulators like the DFS – they don’t like the practice, don’t like fees going back and forth between entities,” he said. “They want no markups, no arrangements, and they are even looking at rates being filed. Not just CFPB but state regulators that are looking for any opening.”