If there’s one unofficial yet overriding theme of this year’s National Mortgage Servicing Conference sponsored by the Mortgage Bankers Association, it has to be the pain of regulatory pressure on servicers.
You can see it in the opening remarks by MBA Vice-chairman J. David Motley, who was careful to express the association’s support for regulation focused on helping homeowners, while detailing the effects of that regulation:
“Servicing is a complex business, even more so in this post-financial crisis world. In the Consumer Financial Protection Bureau, we have a new regulator with unprecedented oversight authority. The agency has instituted thousands of pages of regulations that affect the way we do business every day. Implementing the servicing rule's requirements necessitated system changes and staff training, which had an incredible impact on our business operations, and bottom line.”
Motley used the experience of his own company, Colonial Savings, to illustrate the kind of challenges the industry is facing:
“We've been in the 'prime' mortgage servicing business for 60+ years. We survived the massive defaults in the ‘Oil Patch’ in the 1980s and so far we've survived the most recent default ‘spike’ that started in 2008.
“But we've never experienced the kind of prescriptive, regulatory requirements that have been imposed on us over the last two to three years…Our cost per loan serviced went from $130, a new high at the time, to $195 this year. Not because of increased defaults. In fact, our default rate has dropped to 3% overall. The increase in cost was primarily due to increased expense associated with new regulation and the people, systems and process changes necessary to implement those regulations.”
Regulatory pressure can also be seen in the kinds of panels offered this year. One of the hottest topics seems to be vendor oversight, as the packed panel for Subservicer Oversight on Wednesday would suggest.
The Q and A session following the panel reflected the clarity servicers are looking for in the process. One questioner asked about scope creep in auditing, as companies respond to the regulatory pressure by pushing their vendors and subservicers to do more than they have contracted for. The solution? Make sure the statement of work considers that new pressure and builds it into the overall cost.
But figuring out the real cost of servicing and servicing compensation is also complicated by regulatory pressure. In a session with MBA economists Marina Walsh and Lynn Fisher, several questions from the Q and A reflected the desire for more clarity on what that total cost is to service loans — especially nonperforming loans — and whether the current compensation model is sufficient.
The atmosphere at the conference is not pessimistic, just reflective of a desire to find solutions in the current environment. How can servicers with multiple vendors mitigate their risk? How can servicers build in the costs of compliance in a way that makes sense?
And ultimately, as one company rep stated in the session on subservicer oversight, how do servicers balance the requirements of the investors they work for with the regulations that tip the scale toward protecting homeowners?