CFPB Mortgage Servicing Transfers PwC’s CFPB Mortgage Servicing Standards Perspectives

PwC’s CFPB Mortgage Servicing
Standards Perspectives
Issue 9/October 2014
CFPB Mortgage Servicing Transfers
Mortgage Servicing Transfer Bulletin: The revised CFPB
guidelines should be a key chapter in your transfer playbook
Introduction
This newsletter represents the 9th in a series of publications offering perspectives on the
Consumer Financial Protection Bureau’s (CFPB) Mortgage Servicing Standards. This edition
explores planning considerations in light of CFPB bulletin 2014-01, which was published on
August 19, 2014 and provides additional guidance related to mortgage servicing transfers.
Overview
According to CFPB bulletin 2014-011, servicers
engaged in mortgage servicing right (MSR) sales or
acquisitions (including sub-servicers) should be aware
that the CFPB may require them to demonstrate that
they are taking appropriate measures to facilitate
an effective transfer process and mitigate customer
impact.
One of the cornerstones of an effective transfer
program is a well-documented action plan. An
effective action plan can support the integrity of
information in transit and avoid adverse impacts
to customers as a result of transfer execution. For
example, a tool such as a “Transfer Playbook” can help
mitigate key compliance and execution risks, and can
enable a servicer to readily produce a formal “written
plan,” which the bureau may request at any time
during the transfer, as described in the new bulletin.
Building on a bulletin issued in 2012, the new,
refreshed bulletin draws from lessons learned
overseeing 2013 and 2014 transfer activity in the
industry and more clearly defines expectations for
transferor and transferee. As noted in the summary
table below, areas of focus highlighted in the bulletin
include:
• Measures taken to facilitate the transfer of loans in
active loss mitigation
• Monitoring adherence to the new servicing
standards throughout the transfer process
• Installing due diligence protocol to support data
quality and completeness
• Creating an effective borrower communication
strategy
This article provides an overview of the updated
guidance, compliance considerations and overall
thoughts for implementing an effective transfer
program.
CFPB bulletin 2014-01 key takeaways
Policies and procedures
• Ensure that transfer specific policies and procedures have been developed
• Install process to support timely, complete, and accurate transfer of data and documents
New servicing rules
• Understand the linkage between the new servicing rules and the transfer process
• Loss mitigation in process continues to be a prevalent theme
Consumer protection
• Understand the linkage between consumer protection legislation and the transfer process
• Bulletin highlights compliance with the Fair Credit Reporting Act (FCRA), the Fair Debt Collection
Practices Act (FDCPA), and the prohibition of Unfair, Deceptive, or Abusive Acts or Practices
(UDAAPs)
• Ensure that a robust Compliance Management System (‘CMS’) has been established
Written servicing transfer
plans
• CFPB will, at its discretion, require servicers engaged in transfers to provide a written plan
detailing steps that they will take to mitigate customer impact
1 Compliance Bulletin and Policy Guidance: Mortgage Servicing Transfers, Bulletin 2014-01, August 19, 2014.
Trends & Perspectives on the impacts of CFPB Mortgage Servicing Standards – Mortgage Servicing Transfer Perspectives
2
CFPB transfer requirements:
Focus on loss mitigation and customer service
Among other measures that servicers should consider, the bulletin highlights two areas:
loss mitigation and customer service protocol.
Loss mitigation
The handling of loss mitigation applications and approved
plans may be heavily scrutinized as the bureau has stated that
there is a “heightened risk inherent in transferring loans in loss
mitigation.” 1
These are just a few examples of many loss mitigation pitfalls
that heighten the risk of a regulatory violation. Refer to
Figure 1 for additional considerations.
That assessment is based on previous CFPB examination
results, including findings of servicers:
Figure 1: Common pitfalls when transferring loans in active
loss mitigation
• Failing to identify modifications (trial or permanent),
Uncoordinated
borrower
solicitation in
advance of the
transfer
• Failing to honor modifications from previous servicers,
• Offering another modification with inferior terms.
To help mitigate the risk of adverse impacts to borrowers
during transfer, certain servicer actions have been identified
as pre-requisites to any major transfer. For example, servicers
are expected to flag all loans in a loss mitigation status and
provide workout information to the new servicer prior to
boarding (e.g., mod terms, trial status, etc.) An effective
communication strategy can support the new servicer’s
preparation efforts, which is critical to facilitate active loss
mitigation hand-off.
Poor pipeline
communication
Ineffective
document hand-off
Loss
Mitigation
Pitfalls
Programs
offered by the
seller but not
the buyer
Another area specifically highlighted in the bulletin is
workout evaluation. The bureau indicates it will scrutinize
workout evaluations that take longer than 30 days from the
date that the original servicer received a complete application.
Trial
modifications
based on internal
logic
Customer service
Customer service should also be a priority when developing
transfer protocol. Negative customer experience can heighten
operational costs (increased call volume and complaints),
increase regulatory scrutiny, and have adverse reputational
consequences. Common themes mentioned in the bulletin
include: seamlessly transferring borrower information so that
the new servicer does not contact borrowers for redundant
requests; properly recognizing borrowers’ loan statuses (e.g.,
loss mitigation) and providing appropriate treatment before,
during and after the transfer; and honoring all prescribed
timelines and actions regardless of whether they were
initiated with the previous servicer. A robust execution and
communication strategy can mitigate confusion during the
transfer process and support consistent and fair treatment
from the borrower perspective.
Figure 2: Customer point of view across the transfer process
Goodbye
Letters Drop
T-10
• Unsure, seeking
general info and
process
reassurance – new
servicer intro,
transfer
explanation, etc.
T-15
• Have had time to
read the goodbye
letter, now seeking
more specifics –
account info,
payment guidance,
contact info, etc
T+45
• Expect that the
new servicer has
access to account
information
• Concern around
payment channels
/ timeline posting
T+10
• Noticing servicing
differences
(statements, selfservice options,
etc.)
• Possibly missed a
payment during
transfer confusion
• New escrow
analysis may
result in higher
payment
• Noticing fee
differences
T+65
The customer has a voice. Predict information needs at each phase of the transfer and tailor
communication approach/resource availability accordingly.
Trends & Perspectives on the impacts of CFPB Mortgage Servicing Standards – Mortgage Servicing Transfer Perspectives
3
Transfer requirements: In-depth
While the CFPB bulletin does not present a new rule, it expands
on previous guidance and incorporates the new servicing
standards which became effective in January 2014.
Transferor responsibilities
Transferee responsibilities
• Contracts requiring transferor to provide all documents/information
at loan boarding
• Post-transfer process validating functionality of new data and ability
to identify/remediate errors
• Tailored transfer instructions
• Protocols to evaluate compatibility of systems
• Labeling and leveraging transfer information correctly before
reaching out to borrowers
• Post-transfer QC
• Post-transfer QC
• Batch transfer requirements/contingency plan
• Regular communication with transferor and remediate within
reasonable time (communication and remediation strategies)
Error resolution
• Obligated to respond to Notice of Errors or information requests up
to one year post-transfer
Figure 3: Effective planning outcomes
Does your organization have a plan?
Communication
Error resolution
• Notice of Errors and information requests must comply with
requirements and timeframes even if alleged errors occurred under
previous servicer
Forced-placed insurance
• Force placing a new policy can be done only if there is a reasonable
basis for concluding the borrower has failed to maintain hazard
insurance and proper notifications are sent in a timely manner
• Notices do not need to be resent if the transferor has sent the
notices; however the new servicer must ensure the notices have
been sent
Early intervention
Regardless of whether delinquency began with previous servicer, the
new servicer must:
Governance
Execution
• Ensure good faith efforts of making live contact after 36 days of
delinquency for each billing cycle
• Ensure adherence to the 45 day written notice requirement
Continuity of contact
A robust action plan goes to the heart of a successful and secure transfer.
Action plans should clearly demonstrate roles, responsibilities, timelines
and contingency planning.
It is key for stakeholders from across the enterprise to know how and
when to engage the transfer team. This will support a more seamless
transition from the borrower perspective while promoting operational
effectiveness before, during and after the transfer for the transferee
and transferor.
While there are some actions targeted toward the transferor
or transferee; the guidance implies that both servicers
involved in a servicing transfer have a shared responsibility
in managing loss mitigation procedures to ensure prompt
and proper communication with borrowers. Many of the
• Identify those borrowers that are 45 days past due and assist at
loan boarding
• Provide all borrowers with accurate information, including loss
mitigation (LM) applications initiated at previous servicer
• Have immediate access to borrower’s records, documents and
information that borrower may have provided to previous servicer
• Provide delinquent borrowers with contact numbers (e.g., welcome
letter, early intervention letters)
actions required relate to the transferor’s ability to timely
and accurately transmit information and the transferee’s
ability to accept and act on that information to ensure a
seamless process from the perspective of the borrower.
Transferor responsibilities
Transferee responsibilities
• Flag all loans with pending loss mitigation applications and
approved loss mitigation plans to ensure a seamless flow of this
information from system to system
• Require that transferor supply a detailed list of loans with LM
applications and approved plans
• Require that LM loans be provided pre-transfer
• Require that documentation for loans with LM applications or
approved plans be transferred pre-boarding
• Ensure receipt of information around borrower discussions,
including LM documents
• Determine if partial payments received from borrowers are actually
reduced payments under a modification
Trends & Perspectives on the impacts of CFPB Mortgage Servicing Standards – Mortgage Servicing Transfer Perspectives
Shared responsibilities
Servicers must ensure that all applicable loss mitigation information was sent to the transferee by the date of transfer. The transferor is responsible
for sending timely and correct information, while the transferee is responsible for acknowledging receipt of the information and taking appropriate
action as to the relevant accounts. The CFPB has specifically called out the following information that should be transferred by the transfer date,
including:
Before loss mitigation offer is accepted by a borrower
After a borrower accepts a loss mitigation offer
• Servicer should be aware of all applicable loss mitigation notices
and when they were sent (e.g., acknowledgment notices, notices
stating the servicer’s determination of which loss mitigation options
it will offer to the borrower on behalf of the owner or assignee of the
mortgage loan, denial notices)
• Servicer should maintain documents and information sufficient
to show the borrower’s acceptance of the offer and whether the
borrower is performing in accordance with the terms of the offer.
• Examples of loss mitigation agreements include:
• Trial and permanent loan modification agreements
• All documents and information submitted by a borrower to be
evaluated for loss mitigation options
• Forbearance agreements
• Short sale agreements/deed-in-lieu of foreclosure
• Documents and information sufficient to show whether:
• An application was completed and whether the date received is
documented
• Documentation provided by borrower constitutes a complete
application
• Evaluation was completed and borrower was notified of outcome
• Borrower was denied for LM option
• Appeal for denial was filed, and if so, what is the status of the
appeal
• Foreclosure sale is pending with scheduled sale date, and whether
borrower submitted LM application 37 days before the sale date
• Instructions were sent to/from foreclosure counsel to ensure
compliance with all foreclosure sale prohibitions
PwC’s approach to managing
servicing transfers
As described in greater detail in our February 2014
publication, Mortgage servicing/subservicing transfers:
understanding and managing the hidden operational
challenges, transferors and transferees that have
traditionally proved to be most effective at managing
transfer related challenges are those that have a
proper governance structure. Refer below for tactical
considerations to implement a governance structure.
Figure 4: Building a successful transfer
Building a successful transfer
Transfer experience and planning
Enterprise-wide collaboration
Transfer success drivers
Defined
organizational
structure
Executive
sponsorship
Effective
communication
strategies
Structured
communication
protocol
Dedicated resources
& transfer
“champions”
Issue management
Roles &
responsibilities
Cross-functional
escalation channels
Characteristics of a
successful transfer
Timely issue identification
& resolution
Seamless transfer of loan
data
Coordinated borrower
approach
Governance
Reduced exposure
(financial, operational,
regulatory, reputational)
4
Trends & Perspectives on the impacts of CFPB Mortgage Servicing Standards – Mortgage Servicing Transfer Perspectives
Characteristics of an effective governance structure include:
• Clear roles, responsibilities, accountability, strategies, and
objectives
• Dedicated resources
5
A robust governance structure is essential to provide
leadership, consistency and accountability throughout the
entire transfer process. The key activities to implement a
governance structure include:
• Stakeholder identification
• Identify business units that should be involved
• Structured communication protocol
• Assign dedicated representatives from each business unit
• Clear issue management and escalation channels
• Standardized status reporting supported by detailed project plans
• Executive sponsorship
• Active stakeholder involvement
• Resources with servicing transfer experience
Conclusion
The August transfer bulletin demonstrates the CFPB’s
continued commitment to providing servicing transfer
oversight. Servicers engaged in the transfer of servicing
responsibilities should consider utilizing the framework
presented in the bulletin to develop a transfer plan. Key
components of that plan should include: transfer specific
policies and procedures across the organization, a servicing
transfer regulatory matrix with an explanation of the
activities taken to support compliance (RESPA, TILA,
Regulation Z, FCRA, FDCPA, etc.), and a detailed customer
plan highlighting communication protocol and the steps
taken to facilitate a positive customer experience and
minimize impact. When developing a customer approach,
it is important to remember that a borrower’s questions and
expectations will change based on:
www.pwc.com/consumerfinance
• Clearly define roles and responsibilities and set delivery
expectations
• Implement oversight cadence (internal and external)
The size and complexity of the transferring portfolio will
likely dictate the frequency and duration of internal and
external touchpoints. However, it’s typically more effective
to establish robust governance early in the transfer process.
Governance cadence can be adjusted if necessary as loans
are transferred and the various departments become
more comfortable with their responsibilities and establish
relationships with their contacts at the counterparty.
• Delinquency – the customer approach should consider
unique needs that delinquent borrowers may have;
particularly borrowers that are actively pursuing a loss
mitigation option.
• Transfer lifecycle phase – borrower questions and
expectations will evolve from receipt of the prior
servicer’s “goodbye letter” through transfer and into
post-transfer.
The items outlined in the CFPB bulletin should be thought
of as an important element of a broader transfer program.
There are a number of other considerations about which
both transferor and transferee should be aware. Refer to our
February 2014 publication, Mortgage servicing/subservicing
transfers: understanding and managing the hidden
operational challenges, for additional thoughts about how to
facilitate an effective transfer.
www.pwcregulatory.com
PwC Consumer Finance contacts
PwC Regulatory contacts
Roberto Hernandez
Principal
roberto.g.hernandez@us.pwc.com
940 367 2386
Anthony Ricko
Managing Director
anthony.ricko@us.pwc.com
978 692 1701
Joseph Ruppert
Manager
joseph.ruppert@us.pwc.com
410 404 9412
Bruce S. Oliver
Director
bruce.oliver@us.pwc.com
703 918 6990
Mike Davies
Manager
michael.j.davies@us.pwc.com
504 235 6775
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the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information
purposes only, and should not be used as a substitute for consultation with professional advisors.