Panel: Mortgage servicers should prep for Dodd-Frank fair lending regs
Fair lending issues will apply "on the back end" to mortgage servicers under the Dodd-Frank Act, so they need to get prepared, a panel of attorneys said Thursday. Dodd-Frank describes fair lending as "fair, equitable and nondiscriminatory access to credit for consumers," and that could be applied to access to loan modifications by servicers, said Patrice Alexander Ficklin, counsel with Relman, Dane & Colfax. Ficklin spoke on a panel Thursday during a mortgage servicing conference in Dallas hosted by SourceMedia. "It remains to be seen how that might be applied to your industry," she said. Dodd-Frank's Consumer Finance Protection Bureau, which goes live on July 21, oversees two aspects of fair lending: the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act. The Housing and Urban Development Department, however, will retain authority over the Fair Housing Act, and other federal regulators will retain some enforcement authority, she said. "It's really going to be an alphabet soup" in terms of fair lending oversight, Ficklin said. "Servicers should start looking at their own procedures, policies and data so that you are ready in case you've got a state AG coming after you, in case you've got the CFPB" or a another litigator coming after you, she said. Servicers should look to see, for example, if there are any disparities in approval of loan modifications for racial or ethnic minorities in comparison to whites, Ficklin said. They can use geocoding of census tracks to analyze their data. Servicers will also want to look to see whether certain ethnic groups are getting larger interest rate reductions than others, she said. Kirsten Thomas, vice president and assistant general counsel with American Home Mortgage Servicing, said the servicer has already started gathering data in preparation for the changes under Dodd-Frank. One place it is making changes is to reduce the discretion customer service agents use in applying fees to borrowers. Mortgage servicers should consider a more "hardline" policy on fees as a preventative measure against any allegations of disparate application, panelists said. Lisa Crowley DeLessio, a partner with Hudson Cook, said servicers also need to become aware of a host of new notice requirements and reduced timelines for those notices. Servicers, for example, will need to notify borrowers seven months in advance of an interest rate reset on hybrid adjustable-rate mortgages under the Truth in Lending Act, she said. Servicers will also have to acknowledge the receipt of a written request from a borrower within five days, instead of the current 20. The time to respond to the request drops from 60 days to 30, but includes an additional 15-day window to gather additional data — if the servicer lets the borrower know that there will be a delay in responding. Requirements on force-placed insurance also change in respect to providing notification and reimbursements to borrowers, DeLessio said. Notification changes will take effect on Jan. 1, 2012, if no new regulations are issued, or on Jan. 1, 2013, if new regulations are issued, the panel said. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.