Loan servicers operate between a rock and a hard place today. Customers demand high-quality service. Regulators demand that products and services are provided fairly and equitably. OK, but then the current economic climate adds levels of complexity, with loan modifications, forbearances and confusion about compliance.
Regulators and lenders have not settled on specific fair servicing models, evaluation practices or formally approved compliance tools. Data is challenging and rarely captured accurately and completely in standard servicing platforms. And while regulators and lending institutions generally share a common understanding of fair lending pitfalls and what might constitute HMDA violations, fair servicing compliance is still a moving target.
The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced new loan forbearance requirements, with some guidelines issued subsequently by various agencies. While rules instruct servicers to offer payment holidays without penalizing customers’ credit or loan rate, servicers must help customers through options and maintain the service quality customers expect.
They must do all that, while also remaining compliant in handling, notifying borrowers of options or modifying the loan. This adds operational complexity in maintaining equitable treatment in loan servicing, where customer service must deal with the uniqueness of each loan and borrower, as well as the various people and systems involved in day-to-day processes and maintenance.
Consumers and fair servicing problems
When J.D. Power recently surveyed customers who originated or refinanced mortgages with more than 30 of the nation’s largest servicers, they reported long wait times and little proactive communication. The survey was conducted during the March-April 2020 timeframe at the height of pandemic chaos, in a time of historically low interest rates, record high unemployment and rising delinquencies.
Results analyzed onboarding, billing and payment, escrow account administration, fees, communication, and digital, live and automated phone interaction. It also explored customer satisfaction with risk/loan status, servicing transfers, tenure with servicer and demographics. Survey results highlighted ongoing challenges for many servicers with customer satisfaction, digital and call center experiences that were then further magnified in the COVID-19 pandemic.
Besides customer experience challenges, consumer fears and frustrations due to increased uncertainty around expiration of unemployment benefits and general economic concerns may continue to drive residential mortgage forbearance requests and delinquencies.
For instance, guidance for government-backed FHA and Veterans Affairs (VA) loans is clear that there may not be a lump sum payment required after forbearance. However, there continues to be conflicting information about repayment options, confusion about how to make up deferred payments when forbearance ends and a lack of knowledge regarding borrowers’ rights, including the ability to receive forbearance at all. Outstanding FHA and VA loans make up about 20% of the market.
Lawmakers are questioning whether mortgage servicers management of forbearance requests comply with the CARES Act. Newly appointed vice-presidential candidate Kamala Harris is certain to have a voice. HousingWire Editor Kathleen Howley notes: “Eight years ago [Harris] became known as the toughest negotiator among the 49 state attorneys general who went up against the nation’s biggest banks to secure a $25 billion settlement for mortgage servicing violations.”
According to a special report by the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, and FHFA do not have adequate procedures to ensure that mortgage servicers are following the forbearance provisions of the CARES Act.
Technology companies step up
New technologies can help with compliance, performance reporting and analytics and solving many of the challenges outlined above.
Asurity recently launched its RiskExec Fair Servicing Module. The tool is specially configured to help lenders and servicers track practices and performance and manage complex loan forbearances and modifications authorized under the CARES Act.
The web-based RiskExec platform manages compliance reporting and analysis, automating Home Mortgage Disclosure Act (HMDA), Community Reinvestment Act (CRA), redlining analysis, and fair lending compliance processes. While monitoring borrower treatment, it also manages regulatory compliance obligations for lenders.
“It’s the most integrated fair lending compliance solution on the market,” said Dr. Anurag Agarwal, founder, president and chief architect of RiskExec. “Our clients need to react quickly to the evolving compliance landscape and our Fair Servicing Module helps meet that need.”
What’s a lender to do?
Today, it’s hard to know with certainty if a servicing operation’s staff are being entirely fair and nondiscriminatory. Behaviors that are discriminatory can be unconscious or occasional, and it can be difficult to detect ongoing patterns or individual cases amidst the large volumes of activity. Forbearance and CARES Act compliance still feels like the Wild West. No models or tools are fully industry accepted—yet.
Millions of homeowners have already taken advantage of mortgage forbearance and modification. Mortgage lenders and servicers need to use targeted strategies for managing fair servicing risk today—if they aren’t already. They must balance management of processes and regulatory changes in real time, at the same time ensuring fairness and compliance across day-to-day operations.