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Counsel’s Corner – The Importance of Fiscal Discipline

Editor's Note: This feature originally appeared in the December issue of DS News. Click here [1] to view the full issue.

Daniel Chilton is an experienced financial services attorney and has served on numerous financial services panels because of his extensive expertise in the areas of bankruptcy law, mortgage servicing, financial regulatory compliance, and debt collections. Before joining Robertson, Anschutz & Schneid, he was with Citibank from 2002–2016 and held positions in Operations, Finance, and Legal. He has over seven years’ experience in counseling banks through six consumer finance regulatory exams from the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. He earned his degrees in finance and in economics at Northern Kentucky University and his Juris Doctor at the Salmon P. Chase College of Law. Chilton is a licensed attorney in Kentucky, Ohio, and Texas, and currently lives in Flower Mound, Texas, with his wife and four children.

What advice do you have for firms trying to manage costs in today's foreclosure climate?

Fiscal discipline must be a core firm value. This may play out in a disciplined staffing model, as staffing expenses likely account for over 70 percent of a firm’s budget. Do the partners in the firm hire someone new because their business team suggests it, or are decisions made with discipline and quantified at every level? If there is a need for people yet a staffing model does not arrive at the same conclusion, is Operations disciplined with digging into production reporting at an individual level to ensure maximum output? Additionally, every purchase a partner makes, their firm is watching as an example of how frugal to be with the firm’s money.

Where should firms focus their efforts in order to remain competitive?

See servicing through your clients’ eyes. One client may focus on SLAs, another on onsite legal audit scores, another on the versatility of a firm’s services. Know your clients and give them what they want every single time.

How do you think the market landscape is likely to change in 2019?

A recent Zillow Home Price Expectations Survey suggests the market will change to a buyer’s market in 2019, but I am not sure I agree. We have maintained a strong economy, low unemployment, and a high savings rate—interest rates are also a significant variable. They are expected to climb to an average of 5.1 percent in 2019 from their average today of about 4.6 percent. Taken together, I do not foresee an environment that spikes foreclosure volume where an inordinate amount of homeowners no longer could afford their homes. This assumption is made as all other variables remain constant—this could all change after the election.

Additionally, I have to mention the financial regulatory landscape. With the changes to the Dodd-Frank Act implemented in May this year, we should see a more competitive banking environment from those financial institutions with assets below $10 billion, and less regulation and compliance costs for banks with $50 billion to $250 billion in assets, which classify more as regional banks versus the large international banks.

The BCFP changed its mission statement in 2018 as well. This subtle change saw the removal of the ambiguous word “fairly” from the bureau's qualifications as to how to enforce consumer finance rules. It more fully clarified how it will accomplish enforcement by “regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations.” Some would say this change has fairly tipped the scale to a more balanced regulatory partner.

What are the biggest challenges for firms working to help clients ensure compliance in an ever-shifting regulatory environment?

Clients rely heavily on their partner firms to keep them updated on changes in laws, regulations, and local rules. Firms should partner with servicers on various cleanup and special projects impacting foreclosure, REO, collections, loss mitigation, or bankruptcy—the goal should be to be plugged in at every level of mortgage servicing. Both servicers and law firms are working toward the goal of keeping people in their homes, and it is through that lens that firms should counsel their clients, whether on a microcase level or a macropolicy change initiative. Once your firm has that culture baked into its guidance, it makes the legal analysis that much better.

What are some pending cases that could have a major impact or set precedents for the industry going forward?

The case I think all servicers and law firms should have their eye on is Obduskey v. Mc-Carthy & Holthus LLP, which is before the U.S. Supreme Court. The issue at hand is whether the nonjudicial foreclosure process and the act of conducting a trustee’s sale qualify as “debt collections” under the Fair Debt Collection Practices Act. While states properly have governing foreclosure laws to protect consumers, this case will help properly scope the federal definition of “debt collector.” There are numerous amicus briefs on the matter, one being from our friends at the Legal League 100.

Your firm is a member of the Legal League 100. Why do you think the League is important and beneficial?

Legal League 100 (LL100) is an exclusive association of financial services law firms that represent each state. In my experience over the past several years, the LL100 conferences have been the most well attended, and for good reason; it is where servicers and law firms can speak candidly on the state of the industry, challenges in mortgage servicing, trends in laws and regulations, and best practices. The quarterly newsletter covers relevant topics in our industry; something you could hand a litigation manager in a servicer’s shop and ask, “Are we protected given these changes?”