HousingWire recently spoke with Amanda Phillips, ACES Quality Management’s EVP of Compliance, about the current compliance landscape with CFPB updates and how lenders can ensure they’re compliant with fair lending and fair servicing.
HousingWire: How does Fair Lending affect mortgage servicing?
Amanda Phillips: The Consumer Financial Protection Bureau (CFPB) has repeatedly signaled throughout the past year via blogs, press releases, reports, its Fall 2021 Supervisory Highlights, and requests for information its view that fair lending and fair servicing are, in essence, one and the same.
The CFPB has cited specific servicing concerns, including violations of the CARES Act. An example of a CARES Act violation cited is charging borrowers, who are in forbearance, fees for nonpayment. The CFPB has also taken a heightened interest in “junk fees,” stating, among other things, in a press release announcing a request for information that, “[the] CFPB is concerned about fees that far exceed the marginal cost of the service they purport to cover.”
As economic factors continue to affect borrowers and the risk of delinquency rises, mortgage servicers need to be proactive in helping borrowers navigate their situation and loss mitigation options.
Additional examples of mortgage servicing areas the CFPB highlighted in its Fall 2021 Supervisory Highlights:
- Continuing electronic fund deductions after the borrower has provided notice and updated payment information
- Inaccurate descriptions of payment and transaction information in borrowers’ online mortgage loan accounts
- Violating Regulation X, failing to meet loss mitigation timelines
- Violating Regulation Z, applying payments in excess to the borrowers’ escrow accounts rather than handling them in accordance with title 12 Code of Federal Regulation requirements
- Violating the Homeowners Protection Act, failing to terminate PMI on the date the mortgage principle reaches 78% loan-to-value on a mortgage loan that is current
HW: Where do you see technology helping lenders with the current servicing regulatory environment?
AP: Throughout 2021, government agencies have continuously shared their expectations and areas of focus. The Biden administration has repeatedly stated a “whole government approach to equity” is its priority; advancing equity, equal opportunity and racial justice are at the forefront of this administration’s objectives.
Consistent with these priorities, the CFPB has emphasized fair lending, fair servicing and protection for consumers exiting forbearance as the ripple effects of the pandemic continue. Moving forward, these policies are only going to grow in importance. Lenders can utilize technology to review their compliance, quality control and quality assurance with a fair lending and fair servicing lens.
This is where a robust auditing technology can really shine. Lenders can leverage technology to begin self-auditing, self-identifying and self-remediating any deficiencies in their findings.
Lenders that are being proactive in reviewing and testing their compliance and servicing procedures, particularly through a lens of fair lending and fair servicing, will be well prepared when the CFPB, or another prudential regulator, is on their doorstep.
The CFPB and other regulators want to see lenders acting proactively when it comes to equity and nondiscrimination. Internal audit technology can also help with alerts, updates and questionnaires to ensure lenders have their finger on the pulse of day-to-day changes.
HW: How can ACES help lenders maintain loan integrity and fair lending?
AP: We take a proactive approach to identifying areas of concern for lenders and changing compliance requirements. We always have our eyes open for happenings in the QC and QA realm. Maintaining loan integrity and fair lending requirements begins with self-evaluation and audits. ACES is a surefire way lenders can self-diagnose, self-correct and document remediation before it’s too late.
ACES’ customizable nature provides lenders the flexibility to build QC and QA frameworks that align with their business practices and structure. The platform can be used across financial institutions in a multitude of ways: ACES Sampling replaces manual input with automated criteria-based sampling; ACES Review increases loan review speed while reducing defects through managed questionnaires and customizable question sets; ACES Reporting leverages standard and customized templets to produce executive level reports in minutes.
ACES’ customizable nature and features make it a key tool in identifying problem areas and remediating them. The ACES platform provides lenders with the flexibility to review their current quality control process and comb through findings with a fair lending and fair servicing lens.
Not only can lenders ensure compliance with basic regulatory requirements, but they can also ensure they are meeting expectations for equity and fairness. ACES reporting is robust and flexible, giving lenders the ability to pinpoint where a defect began and remediate.
Last year ACES added and revised over 8,000 audit questions in its ACES Managed Questionnaires, published 2,067 articles and 504 calendar items to its free Compliance NewsHub, and reviewed and interpreted 206 Agency/GSE publications on behalf of users. Most recently, ACES has launched ACES ENGAGE, a two-day conference for quality management professionals to discuss industry trends and best practices, taking place May 23 – 25 in Colorado Springs.
HW: From a loan quality and risk management perspective, what areas should lenders be watching closely in 2022?
AP: In 2022, self-assessment and remediation will be key. The CFPB has been extremely upfront about its priorities this year, and now it’s game time.
Lenders should thoroughly review and update their operational and compliance procedures, quality control framework and audit self-assessment. Lenders should double-check their compliance with loss mitigation timelines, limited English proficiency communication, fees charged and PMI termination compliance – in short, lenders must ensure they are addressing the key topics about which the CFPB has repeatedly spoken.
In addition to the review of operational policies and procedures themselves, their content should be built into audit questionnaires and tested by the internal audit team. As always, document everything, but especially internal audit findings and remediation plans. Regulators want to see mature self-assessment and remediation practices.
The industry is always changing, and the rulebook is always growing. For financial institutions to survive, quality control and quality management are non-negotiable. The CFPB has been clear it will not tolerate unpreparedness.
As we enter a primary purchase market and margins thin, ask yourself, “Can I afford to be the CFPB’s example?” For smaller financial institutions and independent mortgage bankers, that answer is a resounding no, but even larger lenders that did well over the past two years likely cannot afford hefty penalties for non-compliance. Therefore, in this environment, compliance should be viewed as potentially cost-saving, through risk mitigation, rather than only as a cost center.
Check out the on-demand webinar “2022 Mortgage Compliance Outlook” presented by ACES Quality Management‘s EVP of Compliance Amanda Phillips and Ballard Spahr’s Partner Richard J. Andreano, Jr. to learn more about these regulatory changes and what to look out for in 2022.
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