At the onset of the COVID-19 pandemic, servicers faced numerous challenges, not the least of which was implementing frequent regulatory and investor guidance changes while transitioning staff to a remote work environment. The MBA Servicing Solutions Conference 2022 in Orlando (February 23-25) focused on COVID-19 loss mitigation programs, foreclosure prevention measures, and evolving regulations. Several conference sessions highlighted compliance-related issues that represent hot topics for servicers to consider in the coming weeks and months.
Fair Servicing: This evolving topic was discussed multiple times during the compliance sessions, highlighting not only the importance of fair servicing in the current regulatory environment but also the challenges servicers face in aggregating and evaluating the relevant data. Where prior focus on fair servicing has analyzed the assessment of fees and other charges, these sessions focused on loss mitigation outcomes.
– Disparate impact of loss mitigation options: In many cases, servicing agents working on loss mitigation decisions do not have the demographic data that is typically provided at origination. While this demographic information may not be used to determine eligibility for loss mitigation options, it is important to analyze loss mitigation outcomes, using available data and reliable proxies, data to determine if there is evidence of unintended consequences, or disparate impact, for protected classes.
– Another area to analyze for disparate impact is the REO space. Utilizing geographic information, demographic data, and property preservation expenses, servicers can determine if there are varying levels of investment in property maintenance in majority-majority neighborhoods vs. majority-minority neighborhoods.
Foreclosure: In August 2021, the CFPB announced procedural safeguards for foreclosure initiation in order to prevent a wave of avoidable foreclosures. While those procedural safeguards have expired, and foreclosure starts are increasing, there are still challenges in the foreclosure initiation process that servicers need to consider. First, servicers may want to re-evaluate the foreclosure checklist process to ensure it is sufficiently robust to include COVID-19 forbearance and other loss mitigation checks. Additionally, staffing changes both at servicers and at foreclosure attorneys may require additional checks and review to compensate for new staff that are in the process of learning requirements in the foreclosure space. In addition to the procedural safeguards, state regulators will be focused on the disbursement of Homeowner Assistance Funds (HAF), which requires servicers to familiarize themselves and their customers with 51 unique programs. Finally, the CFPB and DOJ reminded servicers of SCRA protections in order to prevent avoidable foreclosures and other inappropriate servicing activities, specifically for service members.
Documentation: The thread connecting these topics is documentation. As new requirements were rolled out, servicers were adapting their processes on the fly, sometimes through email rather than the “normal” documented change management process. In preparation for upcoming exams and reviews, servicers should review their documented policies and procedures, as well as supporting emails, announcements, and memos that may not be reflected. Working to incorporate these supplemental pieces of information will not only identify gaps in the policies and procedures that need to be remedied, but also allow servicers to explain how certain changes were made as servicers identified challenges in implementing new requirements.
For example, the CARES Act required certain disclosures to borrowers. As those disclosures were implemented in notices, a servicer may have observed increased call volume related to the disclosure and what it meant. In response, the servicer may have adjusted the disclosure language to be clearer, and therefore observed reduced call volume. This attempt at clearer communication with customers may not have been fully documented through the normal change management process at the time, but can now be incorporated with clearer justification as to why the disclosure read the way it did.
The MBA Servicing Conference 2022 provided valuable insights and focus on emergent issues and compliance-related challenges and topics that are important for servicers to be aware of in 2022. The Oakleaf Group is equipped with expertise to assist and provide consultation for servicer compliance.
Please reach out to Susan Connally for more information.
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