This piece originally appeared in the October 2023 edition of MortgagePoint magazine, online now.
In today's rapidly changing regulatory landscape, mortgage servicers find themselves facing a myriad of compliance challenges that grow more complex by the day. The Consumer Financial Protection Bureau (CFPB) has been particularly active in its oversight and enforcement of mortgage servicing operations, with a specific focus on issues such as junk fees and debt collection.
Compliance is particularly important for lending organizations that are relying on servicing revenue in the sluggish origination market. To navigate these increasingly demanding requirements, many are turning to an experienced subservicing partner for compliance expertise so they can focus on their core business. But how exactly can a subservicer help?
Understanding Today’s Challenges
Servicers currently find themselves under a tremendous amount of regulatory pressure. The CFPB is just one regulatory agency that oversees servicers, but the Bureau has been particularly busy in taking enforcement actions against organizations that fail to meet federal requirements.
Over the past year, for example, the CFPB has targeted several servicers for violating the CARES (Coronavirus Aid, Relief, and Economic Security) Act by misleading customers who sought forbearance assistance, failing to accurately represent their options, and asking for more information than borrowers were required to share. According to recent CFPB regulatory bulletins, the Bureau has also taken an increasingly strong stance against "junk fees," including fees charged to borrowers seeking forbearance and phone payment fees that were not properly disclosed.
In addition to these new areas of the CFPB’s focus, servicers must continue to audit staff activities to ensure the proper policies and procedures are consistently followed, while providing compliant and timely communication with borrowers.
In this evolving landscape, servicers need to have the best people, technologies and practices in place to proactively manage risk—but also a culture of service and excellence. This means going the extra mile to keep your customers happy and empowering them to achieve their homeownership goals. A servicer built to serve borrowers’ best interests will more naturally meet and exceed regulatory requirements. Further, this customer-centric mindset will enable lending organizations to effectively manage risk, retain customers for life, and achieve responsible, sustainable growth.
Finding the Right Resources
For many lending organizations, the most economical strategy is partnering with a subservicer that offers the adept compliance expertise and servicing technologies required for a compliant and high-performing servicing portfolio. These are capabilities which require significant investment of capital, human resources, and time—often on an ongoing basis. This level of investment often does not make financial sense for many small- and mid-sized lenders, as well as investors seeking to grow a servicing portfolio through acquisition.
On the other hand, partnering with a subservicer can relieve these organizations from the heavy lifting servicing compliance requires. It can also boost efficiencies, allowing compliance teams to focus on more substantive and high stakes matters, and enabling leadership to focus on the core business and bottom line. The ideal subservicing partner has all the right tools and resources in place, the agility to scale up or down according to clients’ needs, and a long-term vision and strategy to continuously advance.
Servicing technology should be a top consideration when choosing a subservicing partner. Modern servicing platforms are robust, integrated, scalable, and equipped with smart tools like AI (Artificial Intelligence), workflow automation, and cross-platform analytics that aid compliance and enhance customer experience. For example, our servicing platform helps us ensure timely termination of mortgage insurance, accurate and timely escrow analyses, and adherence to all other state and federal regulations that apply to a servicing portfolio. AI allows us to listen and analyze customer interactions across multiple channels, so we can quickly detect and address potential risks.
The use of advanced data analytics to aggregate customer satisfaction metrics in actionable ways is another way servicers can continuously improve the experience offered to customers and clients. Having a comprehensive platform that integrates servicing activities from end to end maximizes efficiency and excellence across operations while closing compliance gaps and minimizing risk.
Where Culture Meets Compliance
At the end of the day, most lenders want to retain and expand customer relationships. The best way to earn loyalty is by being a true partner and empowering customers and clients to achieve their goals. Organizational culture plays a huge role. Anyone can be trained to follow a procedure and check compliance boxes, but training people to genuinely care isn’t so simple.
At my firm, recruiting team members who believe in our mission to make a positive difference for others is a main focal point. After all, your people are the foundation of the kind of service you are able to provide to your customers. Regulations and guidelines are designed to protect borrowers’ interests, and when a servicing organization exists to do the same, meeting, and exceeding compliance requirements can become much easier.
For example, one area I see culture play an integral role is issue and complaint resolution. Of course, following the correct procedures is critically important, but there are a lot of nuances that can promote a positive outcome. The value of talking with a customer, listening actively, understanding their concerns, and keeping them informed throughout the resolution process cannot be overstated. Truly caring and demonstrating accountability goes a long way in earning trust and strengthening relationships. In short, when servicers approach these types of issues as opportunities to serve others and improve the overall customer experience, everyone wins.
Three Lines of Defense
Regulatory oversight is a fact of life for mortgage servicers, and staying compliant requires robust risk management framework. In addition to providing a superior customer experience, servicing organizations should employ three lines of defense to mitigate risk: operations and business controls, risk oversight and management, and internal auditing.
On the front line, operations and business controls teams need to take ownership of risks that exist across servicing activities by designing policies and procedures, training programs, and effective quality control (QC) practices. People and technology work in concert. For example, our customer care telephony system enables continuous call listening and sentiment analysis to identify trends in our customer experience and potential compliance issues, while first-line teams conduct at least 17 evaluations per agent each month. These evaluations focus on compliance, soft skills, and issue resolution, while offering immediate and actionable feedback to our agents.
Proficient change management is also crucial. Staying on top of regulations and guidance requires a broad network and multiple industry sources, as well as robust change management practices to ensure effective implementation. This should include careful testing, monitoring, and reporting to an organization’s compliance and leadership.
To effectively manage risk, subservicers should have well-defined risk assessment methodology in place, oversee its execution, aggregate the results to monitor adherence, and identify areas of emerging risk. Then, objective and independent internal audits are used to ensure first- and second-line processes are designed and operate effectively. Again, technology streamlines these activities from end to end, enabling timely issue detection down to the loan level and efficient research, remediation, and reporting across a portfolio.
For example, organizations can implement a rules engine that monitors data across entire portfolios and be alert to potential issues in near real-time. Cross-platform analytics also support timely reporting to an organization’s audit committee and board, as keeping an organization’s leadership informed empowers intelligent decision-making and portfolio management. Overall, this three-pronged approach to risk management will help a servicing portfolio stand up to the scrutiny of regulators and agencies.
While lending organizations face a multitude of challenges in today's regulatory environment, a subservicing partner—especially one with the right technologies, culture, and risk mitigation strategy—can offer numerous advantages beyond mere compliance. Big picture, it’s about strengthening loyalty to your brand, cultivating high-performing servicing portfolios, and growing sustainably.