Millions of homeowners are anticipated to exit forbearance programs this fall and winter, with many behind on their own mortgage payments, and mortgage servicers have to be ready. Indeed, in the headline of an April 1 compliance bulletin, the customer Financial Protection Bureau warned them that \”unprepared is unacceptable.\”
Panelists in 2 sessions of ABA's 2022 Regulatory Compliance Conference agreed that the tsunami of troubled mortgages exiting forbearance represents an imminent challenge for lenders. Actually, mortgage servicers have faced unprecedented challenges since the oncoming of Covid-19, when business suddenly turned remote and lenders were bombarded by new rules and guidance. Now, however, regulators are emphasizing little leeway for lenders who fail to prioritize borrowers' needs.
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\”There isn't any time for you to waste, and no excuse for inaction,\” wrote former CFPB Acting Director Dave Uejio within the bulletin. \”Servicers who put struggling families first do not have anything to fear from your oversight, but we'll hold accountable people who harm homeowners and families.\”
The bulletin notes that industry data suggests nearly 1.7 million borrowers exiting forbearance programs in September and also the following months, with many of them annually or more behind on their own mortgage repayments, which servicers should be preparing now. It is going onto describe eight broad servicing areas on which to focus, making the overarching point that lots of borrowers are still influenced by Covid, won't be able to pay for payment deficiencies immediately and can need long-term relief.
\”The CFPB is which makes it clear it's going to take out all the stops to ensure servicers do what they can to assist borrowers impacted by Covid,\” says Jason Bushby, partner at Birmingham-headquartered Bradley Arant Boult Cummings. \”I would encourage servicers to actually staff up when they haven't already.\”
Bankers participating in the conference panels noted several considerations for servicers in light of the bulletin and future examinations, and they pointed to customer complaints as a key indicator for where regulators will focus.
\”Are you seeing complaints in a few areas and have you investigated them, dissected them to comprehend the real cause, and remediated them?\” asks Lynn Tarantino, chief control officer at Cenlar FSB, a federally chartered thrift that gives subservicing for that 3.3 million loans of 141 financial-institution clients. \”Getting in front of those can be really important. Everyone knows that complaints would be the breadcrumbs resulting in issues within the organization.\”
Aaron Rykowski, chief compliance officer at WesBanco Bank, a West Virginia-based midsize institution with 25,000 loans, noted the importance of analyzing complaints within the CFPB's database which have been leveled from the specific lender or the vendors it works with.
\”That's the initial place [regulators]are going to go,\” Rykowski says. \”They're likely to pull the complaints, look at your response times and just how you responded, and whether you identified issues that could have impacted other customers or just handled things on a one-off basis.\”
Rykowski adds that complaints may prompt examiners to question how an account was handled, and servicers must carefully document the steps come to address issues. Complicating matters would be that the unprecedented nature of the pandemic likely required servicers to deviate sometimes using their standard procedures-to be expected once they were handled properly.
\”What process deviations were approved by your management team, and just how did you document the changes in your standards to get through the pandemic, which means you could still accurately and adequately service your customer accounts?\” he states.
The issue of how mortgage servicers handle customer accounts originates to a head this fall, as foreclosure and eviction moratoriums have mostly ended but gainful employment remains elusive for a lot of.
\”The biggest risk we're going to see from a borrower perspective is what is going to happen when all these assistance programs ended at the same time, leaving a gap,\” Rykowski says.
The challenge for servicers, he states, will be addressing that gap and determining how you can assist borrowers who had little treatments for the pandemic's impact on their lives. He noted that lots of customers may face diminished job opportunities. So how can servicers evaluate them in the context of more traditional methods to prevent foreclosures?
\”Many servicers are going to have to return to enter board and look at what we've designed and whether our standard products and options fit what is going to take place in the period before we get to full employment,\” Rykowski says.
Tarantino added that servicers must aim to forecast as accurately as possible their pipeline of potentially problematic mortgages, to project the staffing implications not just for sales departments but functions including loss mitigation, foreclosure and bankruptcy. She states that this is the time for servicers to examine their pre-foreclosure checklists to ensure the critical regulatory requirements are embedded in policies and operations, ensuring clients are not prematurely referred to foreclosure.
Another major risk, she adds, is when servicers are responding to borrowers' requests for loss-mitigation assistance and processing loss-mitigation applications, and just how they effectively helped those borrowers by promoting available alternatives, reducing avoidable foreclosures and the related costs.
Seeking to help borrowers within the easiest way possible, however, can raise concerns about fairness if borrowers are classified as being treated unequally.
\”The guidance says something, but the best thing for any specific customer might be something else, so how will the servicer balance this?\” Tarantino adds.
The unfair, deceptive or abusive acts or practices (or UDAAP) provision from the Dodd-Frank Act, for example, gives the CFPB rulemaking and enforcement authority to prevent unfair, deceptive or abusive acts or practices within the consumer-finance realm. Jonathan Kolodziej, partner at Bradley, says the CFPB has suggested for public statements that it promises to use its UDAAP authority to enforce requirements underneath the CARES Act high isn't already an authority or agency given the job of its enforcement.
\”We think the new administration is going to be aggressive and, quite frankly, prepared to press the boundaries, given that they can't fully realize the bounds of their authority unless they test it,\” Kolodziej said.
Bushby points to loss-mitigation communications related to Covid as a key area in which the CFPB will probably employ UDAAP, analyzing whether communications to borrowers were understandable and clearly reflected the programs the servicer been on place.
\”Examiners will look in the CFPB's servicing rules, but when they find other activities that don't smell or look right-something really confusing or employing a bait-and-switch-type approach-that's where UDAAP comes in,\” Bushby says. \”We've already seen it and we'll see more.\”
The issue of unequal treatment can arise when borrowers speak English as a second language. Tarantino says she understands that being an important area for the CFPB, and something her federally chartered thrift's prudential regulator has centered on.
\”Servicers need to ensure they were supporting homeowners for whom English is a second language, and achieving the statistical analysis to show that there was no disparate treatment is going to be very important,\” she says.
The early days of the pandemic were unprecedented across almost all industries and mortgage lending wasn't any exception, with mortgage bankers and staff in home offices disrupted by their kids and often working with insufficient technology. In addition, new laws, regulations and guidance appeared to be issued in the federal and state levels, requiring lenders to make important decisions often quickly and without sufficient information. Mortgage servicers undoubtedly made mistakes, and also to their chagrin examiners as well as potential litigants will be viewing those moves using the advantage of hindsight.
Bushby says he frequently hears clients stating that if the CFPB looks back a year ago or more and finds problems, there's little to become done about it. That may be in keeping with an extent, he added, but it also greatly benefits mortgage servicers in an examination or facing an enforcement action to show the way they internally identified issues and remediated them.
\”Get inside and fix it, and I think you will get some brownie points,\” he states.
John Hintze is a frequent contributor to ABA Risk and Compliance.
