Loss Mitigation Steps – If not done correctly will result in costly compliance exam findings!
Federal and state regulators continue to assess whether the loss mitigation practices performed by mortgage loan servicers are compliant with the regulations. While the financial crises is behind us, the CFPB’s enforcement of the loss mitigation regulations is still a risk i.e. the mortgage servicer is still vulnerable to regulatory actions and penalties.
There are six key functions of 12 C.F.R.§ 1024.41 that a mortgage servicer must perform timely and accurately when addressing a borrower’s request for assistance (i.e. loss mitigation efforts):
1. 5 business day requirement to send a notice indicating that the application is complete/incomplete (required by Section1024.41(b)(2)(i)).
2. 30 calendar day requirement to send a notice of determination (approve or deny request) after receiving a completed mortgage assistance application (required by Section 1024.41(c)(1)).
3. 37 calendar day requirement whereby if the servicer receives a completed package within 37 days of a scheduled foreclosure sale, then the servicer is not required to process the request for assistance.
4. 14 day appeal requirement whereby the servicer must communicate to the borrower within the “denial” decision that the borrower has the “right to appeal” the decision within 14 days of the servicer’s decision date (required by 1024.41(h)).
5. There are also specific content requirements for the communications to the borrower such as providing “specific reasons” for the denial decision (required by Section 1024.41(d)).
6. An assessment as to whether there is evidence of “Dual-tracking” the modification effort with the continuance of foreclosure activities (is a violation of 1024.41(f)).
To ensure that the mortgage servicer is performing the loss mitigation within the timelines set by the CFPB – the servicer should, among other steps, perform an assessment that identifies the process, date sensitive activities, data and document requirements, controls over borrower provided documents (and multiple requests for such) and tracking information from your loan servicing/loss mitigation tracking systems. The document reviewers of the borrower communication content must understand the importance of the date sensitive actions, the identification of required documents from the borrower and an experienced leader to assess the requests of borrowers to send more informaton.
The mortgage servicer should be able to identify and provide indicators that your loss mitigation servicing function is compliant. In helping mortgage servicers with compliance in this area – we typically ask the following questions:
- Does the number or percentage of possible non-compliance items indicate a high risk of loss mitigation compliance and changes need to be made to the policies, processes and technology?
- Do your tracking systems tell the servicer how its performing?
- Is the data that is extracted from your loss mit applications complete and accurate?
- Is there missing data? Do the status codes make sense?
- Are the data fields used properly by loss mit servicing employees?
- Are there inconsistencies with the data – multiple statuses, number of loans in loss mit, etc.?
- Is the quality of the loss mitigation communications to the borrower strong enough to be compliant with Step 5?
- Are there tracking/warning signals if the loss mit and foreclosure dates do overlap and identify possible “dual tracking”?
Hilltop’s credit and compliance risk team has helped our clients with identifying compliance risk in the loss mitigation area. While quality can be assessed and found to be strong – there is still risk vulnerability associated with not performing specific key loss mitigation steps on a timely basis as required and still results in regulatory non-compliance.
Our compliance team has developed an analytical process that identifies your Company’s loss mitigation and other servicing compliance risk levels. Our data analytics tool can identify overlapping dates for loss mitigation activities and foreclosure activities that can indicate potential “dual tracking”. We also use our PerforMetrics© methodology to identify inefficiencies and the related cost (including the cost of regulatory compliance).
For further information on how Hilltop may be able to assist your efforts in the loss mitigation area and overall mortgage servicing performance, please call Don Davis or Jeff Oliver at 703-356-3350. We look forward to hearing from you.
