New Regulations and Mortgage Document Management: What it Means for Mortgage Servicers

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1 New Regulations and Mortgage Document Management: What it Means for Mortgage Servicers

2 CT Representation Services New Regulations and Mortgage Document Management: What it Means for Mortgage Servicers In response to economic crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Act ) to provide safeguards for consumers, as well as oversight for certain financial service practices. Of particular relevance to the mortgage industry, Title X of the Act established the CFPB and authorized it to supervise and regulate certain consumer financial services companies and large depository institutions and their affiliates, as well as enforce many federal consumer protection laws. Since its creation, the Bureau has paid considerable attention to the regulation of mortgage servicing practices as a result of the public outcry related to the robo-signing scandal and certain foreclosure practices. While the regulation of the mortgage servicing industry will continue to evolve and impact the way lenders and mortgage servicers interact with borrowers, the CFPB s recent regulations have provided insight into the servicing environment the CFPB wants to establish. On January 17, 2013, the CFPB issued its mortgage servicing final rules (the Rules ), which will take effect on January 10, The Rules clarify various provisions of the federal Truth in Lending Act and the Real Estate Settlement Procedures Act and are designed, in part, to facilitate successful interaction between borrowers and mortgage servicers. Richard Cordray, the Director of the CFPB, has emphasized that the Rules are backed by the full supervisory and enforcement authority granted to the CFPB, so it is important for any business engaged in mortgage servicing activity or other related businesses to fully understand the obligations the Rules impose on mortgage servicers. While the Rules cover a broad range of mortgage servicing activities, including monthly mortgage statements and disclosures for adjustable rate mortgages, some of the most important requirements contained in the Rules deal with mortgage servicers management of documents concerning mortgage obligations and servicers interactions with borrowers, particularly those revolving around loss mitigation. Page

3 The Rules require servicers to implement policies and procedures to streamline borrower communications and the servicing process Under the Rules, mortgage servicers will be required to retain records for one year after the date a mortgage loan is discharged or the servicing of such loan is transferred. This does not necessarily mean that hard copies of such records must be kept, rather, the records may be retained in any method that permits the servicer to accurately reproduce and easily access the records. Further, the Rules require servicers to maintain documents and data in a manner that allows the servicer to compile the documents and data into a servicing file within five days. Under the Rules, the servicing file shall include: (1) a schedule of all transactions credited and debited to the mortgage loan account; (2) a copy of the security instrument; (3) servicing notes reflecting borrower communications; (4) reports of data fields related to a borrower s loan using the servicer s electronic systems; and (5) copies of information and documents the borrower has provided in relation to loss mitigation requests and the resolution of servicing errors. Importantly, this requirement applies to documentation and information created after January 10, 2014, the effective date of the Rules. Additionally, in apparent response to the Bureau s conclusion that major mortgage servicers failed to make necessary investments in resources and infrastructure, the Rules require servicers to implement policies and procedures to streamline borrower communications and the servicing process. The Rules allow servicers to independently determine the specific policies and procedures and methods used to implement such policies and procedures. Although servicers may retain their existing policies and procedures if they are appropriately tailored and designed to achieve the objectives of the Rules, we suggest that servicers review their policies and procedures to ensure they are in compliance with the Rules. Moreover, it is absolutely necessary for servicers to ensure that their business practices follow their stated policies and procedures. Mortgage servicers must institute policies and procedures designed to ensure access to accurate information and documents concerning mortgage loans. These policies must permit the servicer to provide borrowers with accurate information in a timely manner, investigate and respond to borrower complaints, facilitate the provision of accurate and current information and documents to owners and assignees of mortgage loans concerning loss mitigation actions, and submit documents and court filings for foreclosures that reflect accurate and current information. Moreover, the Rules require policies to ensure oversight of third-party vendors, which also includes policies to provide and facilitate the sharing of documents and information. To accomplish these objectives, servicers should review the functionality of their document management systems to make sure they are compatible with the purpose of these policy requirements. For example, the Bureau suggests that a servicer s ability to properly investigate and promptly respond to borrower requests and complaints is dependent on the accuracy of the servicer s records and its employees ability to access such records. Page

4 The Rules require mortgage servicers to institute policies ensuring that information and documents are provided to the appropriate entity in the event of a servicing transfer. In particular, it is the transferring servicer s obligation to ensure that all information and documents concerning the mortgage loan in its possession or control are transferred to the new servicer in a timely manner and in a form that enables the new servicer to comply with its obligations to the owner of the mortgage documents. Such documentation would not only include the mortgage documents and information related to payment history, but also includes information concerning the status of loss mitigation discussions, any loss mitigation agreements, and any analysis concerning the potential recovery of a non-performing mortgage loan. The official comments also explain that such transfers may be done electronically; however, the data must be able to be promptly incorporated into the new servicers systems in a manner that allows the servicer to identify all necessary documents. Further, the Rules require policies and procedures that allow the new servicer to identify documents and information that may not have been transferred by the prior servicer. The policies must provide that the new servicer will attempt to obtain such documents and information from the prior servicer prior to requesting information from the borrower. In order to implement appropriate policies, as well as comply with other aspects of the Rules, servicers should review how their document management systems organize documents to ensure the information is maintained in a manner that would allow for, not only the creation of a servicing file within five days, but the wholesale transfer of all documentation a new servicer would need to avoid any delay or undue hardship to borrowers. Finally, servicers must also implement policies and procedures to respond to borrowers requests regarding error resolution and for documents. Specifically, servicers must respond to written requests by borrowers seeking resolution of potential errors in the borrowers account. If a servicer determines that no error has occurred, the servicer must be able to provide borrowers with the documents that support its determination that no error has occurred. In order to properly investigate and respond to error resolution requests, it is important for servicers to maintain accurate records that are easily accessible. Further, servicers must respond to a borrower s written request for information with limited exceptions. With respect to requests for information concerning the owner or assignee of a mortgage loan, the servicer must provide the borrower with the information requested within 10 days. For all other information, such response must be provided within 30 days. Given the necessity for servicers to respond to borrower requests within these short timeframes, it is even more important for servicers to maintain accurate and accessible records to avoid any delays in responding to borrowers. Page

5 The Rules should also be read in conjunction with the CFPB s Mortgage Servicing Supervision and Examination Manual (the Manual ). Pursuant to Title X of the Act, the CFPB is given the responsibility to examine financial institutions for compliance with Federal consumer financial law. While the Manual is not binding law, the Manual acts as a field guide for examiners to use during examinations. With respect to the preparation of a response to the CFPB s initial information request related to an examination, the Bureau strongly prefers that documentation be provided in electronic form. Additionally, while the Manual does not require servicers to provide information or documents to examiners in electronic form, the Bureau s examiners are required to maintain copies of all documentation reviewed for their final report and typically request that certain information be provided electronically. In reviewing mortgage servicers, examiners will review records related to (1) servicing transfers made with in the last year, (2) payments and fees, (3) consumer complaints, (4) maintenance of escrow accounts and insurance products, (5) credit reporting, (6) loans in default, bankruptcy, or in collection, (7) loss mitigation, and (8) foreclosure. Servicers should consider whether their document management systems will allow the Bureau to easily review and obtain copies of the documents necessary for their review. Most importantly, servicers should re-evaluate their existing document management systems to ensure that those systems meet their current needs and are capable of easing their regulatory burden in the future. Central is the ability to streamline business processes through the intelligent application of technology, imaging and workflow mapping and process automation tools As a result of Dodd-Frank, related other regulatory initiatives and industrydriven best practices, mortgage servicers are increasingly instituting policies and procedures that ensure completeness and quick availability of mortgage loan document and data. Numerous industry solution providers have advanced the quality and availability of mortgage data, analytics and availability to source and retrieve mortgage documents from any jurisdiction in the United States. With the goal of creating true end-to-end transparency, data and document access critical to compliance with Dodd-Frank -- these solution providers offer the additional benefit of making mortgage servicers more flexible, cost effective and better prepared to address market dynamics. An effective vendor has deep-domain expertise, technology expertise and a customer-focused delivery model. Central is the ability to streamline business processes through the intelligent application of technology (such as Web-based document platforms with easy to-navigate user inputs and interfaces), as well as integration, imaging and workflow mapping and process automation tools. Not only do these critical elements make a servicing operation more efficient and profitable, this evolution demonstrates a commitment to creating the servicing center of excellence the CFPB is seeking as a result of the robo-signing scandal. Page

6 For example, with a solution provider, a mortgage servicer can: Receive complete information, including recording reference data (dates, instrument numbers, recording book), beneficiary, assignments and legal descriptions Access millions of document images in repositories or county jurisdictions Obtain a wide variety of data elements, including ownership, mortgage, assignment, parcel, sales value, property lien position and flood zone intelligence With Dodd-Frank, if servicers don t respond quickly to an audit request with clean, well-organized files, examiners are likely to apply even more scrutiny. Critical is the need to demonstrate that everything was done correctly when originating or servicing mortgage loans. When documentation is not readily available, disorganized files can lead to audit fines, lost productivity and costly buybacks. Rapid response to audit requests and documented chain-of-custody demonstrate strong policy adherence. In addition, a vendor solution can serve as an electronic bridge between submitters of real estate documents and county offices, enabling documents to be prepared, submitted, recorded/rejected, indexed and returned with speed and efficiency. In preparation for the new changes as a result of Dodd-Frank, servicers would benefit greatly from working with servicing platform providers to ensure their solution and workflow supports all of the necessary fields to generate documents that will be fully compliant under the new guidelines. Additionally, servicers should work with their solution partners to verify that these solutions will be implemented in sufficient time. By acting now, servicers can avoid panicking in December and make the upcoming transition as smooth as possible. Page

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