Introduction to Mortgage Servicing Examinations Training - March 2023

Intro duction to Mortgage Servicing Examinations Training

March 21- 30 , 202 3 Virtual

@ www.csbs.org � @csbsnews

CONFERENCE OF STATE BANK SUPERVISORS 1 300 I Street NW / Suite 700 / Washington, DC 20 005 / (202) 296-2840

Introduction to Mortgage Servicing Examinations Training ‐ Live Virtual March 21 ‐ 30, 2023

Week 1 Tuesday, March 21, 2023 1:00 pm – 1:45 pm

Introductions & Welcome Mortgage Reg Overview

1:45 pm – 2:15 pm 2:15 pm –2:30 pm 2:30 pm ‐ 3:00 pm 3:00 pm – 4:00 pm

Break & Icebreaker

Scoping an Examination Exam Scoping Exercise

Wednesday, March 22, 2023 1:00 pm – 1:15 pm

Prior Day Review

Basics of Financial Analysis

1:15 pm – 2:15 pm

Break & Icebreaker

2:15 pm – 2:30 pm 2:30 pm – 3:00 pm 3:00 pm – 4:00 pm

Basics of Financial Analysis Financial Analysis Exercise

Thursday, March 23, 2023 1:00 pm – 1:15 pm

Prior Day Review

Policy Review

1:15 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 4:00 pm

Break & Icebreaker Policy Review Exercise

Week 2 Tuesday, March 28, 2023 1:00 pm – 1:30 pm

Prior Week Review Loan File Review Break & Icebreaker Loan File Review

1:30 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 4:00 pm

Wednesday, March 29, 2023 1:00 pm – 1:15 pm

Prior Day Review Loan File Review Break & Icebreaker

1:15 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 4:00 pm

Loan File Review Exercise

St Thursday, March 30, 2023 1:00 pm – 1:15 pm

Prior Day Review

Effective Meetings Break & Icebreaker

1:15 pm – 1:45 pm 1:45 pm – 2:00 pm

Effective Meetings Exercise

2:00 pm – 3:00 pm

Conclusion

3:00 pm – 3:30 pm

St

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Mortgage Servicing Examiner Training Introduction

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Zoom

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Administrative & Non-Depository Bureau Chief Montana Division of Banking & Financial Institutions cromano@mt.gov Chris Romano

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Principal Financial Examiner Consumer Credit Division Connecticut Department of Banking richard.cortes@ct.gov Richard Cortes

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Financial Non-Depository Examiner Maryland Office of the Commissioner of Financial Regulation matthew.mainolfi@maryland.gov Matt Mainolfi

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Associate Financial Examiner Consumer Credit Division Connecticut Department of Banking daniel.landini@ct.gov Daniel Landini

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Introductions

NAME

AGENCY AND STATE

FUN FACT ABOUT YOURSELF

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Session Learning Objectives: 1. Review material from Introduction to Mortgage Origination Examination Training

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Session Learning Objectives: 2. Identify basic concepts involved in mortgage servicing

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Session Learning Objectives: 3. Apply concepts to exam scenario exercises

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Go to www.kahoot.it

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Group Questions

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Group Questions

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Who is involved in Mortgage Servicing? Mortgage servicers work with four types of loans:

• Fannie Mae &

Freddie Mac Loans • Government Loans • Portfolio Loans • Private-label Securities, or PLS Loans

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The Lender

Generally, there are 2 ways: 1. Lender decides to service the loan itself 2. Lender sells the right to service the mortgage After the loan is closed, the lender decides who services the mortgage

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Insurers & Guarantors

• Offer protection that the Most important players

owners of the loans will be paid the principal & interest

• Create guidelines that servicers must follow

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Investors The person or entity that owns the loan

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Regulators

• State & federal regulators oversee aspects of the mortgage system • Federal regulators play oversight roles • CFPB watches out for consumers’ interests • Some lenders & servicers are also regulated by state entities

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Rules • State legislatures & state courts set rules for foreclosures • Investors, insurers, guarantors & regulators make the rules for how servicers work with homeowners • Servicers are legally accountable to multiple stakeholders • Servicers must also comply with consumer protection requirements

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Servicer Business Models

Non ‐ Bank or Independent Mortgage Servicer

Bank Servicer

Sub ‐ Servicer

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Non-Bank Servicer Non-Depository Supervisory Committee (NDSC): • Provides oversight of & support

for functional committees established by nationwide cooperative agreements

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Non-Bank Servicer State Coordinating Committee (SCC): • Multi-state regulatory oversight group responsible for coordination of multi-state non-bank exams with the CFPB

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Non-Bank Servicer Multistate Mortgage Committee (MMC): • Representative body of state mortgage regulators • Represent the examination interests of the combined states • Under the Nationwide Cooperative Protocol and Agreement for Mortgage Supervision

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Non-Bank or Independent Mortgage Servicer Models

Originator/Servicer

Servicer Only

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Sub-Servicer

• Typically, non-banks • Perform functions for Master Servicer as a third-party vendor • Receive fees on a per loan basis • Master Servicer retains risks & is responsible for funding advances for taxes & insurance

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Interim Servicing • Occurs between when a lender closes a loan & when it is sold into secondary market • Typical holding periods are up to 90 days • Lender may administer loan as needed during this period • Most states exempt interim servicing from licensing

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Group Question

How is the mortgage servicing industry regulated today?

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Supervisory & Oversight Framework

FHFA, GSEs, GinnieMae & Investors

State Regulators

Mortgage Servicer Type

CFPB

X Non ‐ Banks *Servicers servicing on behalf of the GSEs or investors are subject to GSE and investor oversight and requirements X* X

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Regulatory / Oversight Entities

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Regulatory / Oversight Entities

CFPB: In response to the financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, which established the Bureau of Consumer Financial Protection (CFPB) as a new regulatory entity. The CFPB inherited consumer financial protection laws and regulations from other federal agencies and also was granted authority to prohibit “unfair, deceptive or abusive acts or practices” (UDAAP) in connection with the offering of consumer financial products and services, including originating and servicing mortgages.

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Regulatory / Oversight Entities

State-Level Consumer Protection: The Conference of State Bank Supervisors (CSBS) is a nationwide organization of banking regulators from all 50 states, and other U.S. jurisdictions. The mission of the CSBS is to support the leadership role of state banking supervisors, represent the interests of state supervisors at the federal level, and optimize the authority of individual states in their oversight over supervised entities. State regulators implement their authority in varying ways, including regulation, licensing requirements, and examinations. Enforcement of state laws around foreclosures and bankruptcy also falls into the purview of state regulators.

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Regulatory / Oversight Entities Other Federal Regulators – FRB, OCC & FDIC: The Federal Reserve, OCC, and FDIC each provide regulatory and supervisory oversight for banking institutions in addition to special roles that each play in the financial system. Aside from overseeing banks, the Federal Reserve conducts the nation’s monetary policy and provides financial services to the banking industry, the government, and foreign institutions; the OCC charters banks and savings institutions; and the FDIC insures deposits.

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Group Questions

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Resources Video: What is Mortgage Servicing? • https://www.youtube.com/watch?v=6hmnoqJdjqo Video: Who is Involved in Mortgage Servicing? • https://www.youtube.com/watch?v=AkuNvEt2VMQ Video: Default Servicing? • https://www.youtube.com/watch?v=roq8x57rjQo

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Mortgage Servicing Examiner Training Scoping a Servicing Examination

Session Learning Objectives: 1. Identify resources

that are helpful in scoping servicing examinations

Session Learning Objectives: 2. Understand how

to leverage the NMLS for exam scoping

Session Learning Objectives: 3. Apply concepts to exam scenario exercises

Scoping Tools

Mortgage Call Reports (MCR) MCRs provide information regarding a company’s servicing activity and financial condition

MCRs Two versions: 1. Expanded 2. Standard

NMLS Analytics

Two powerful analytic tools to assist you in scoping exams: • Mortgage Examiners’ Report • MCR Analytics

Accessing NMLS Analytics

Mortgage Examiners Report

Key Indicators

NMLS – Composite View

NMLS – Composite View

Provides access to a wide range of useful information

regarding: • Company • Branch • Individual

Business Plans

An excellent source of information for scoping!

Business Plans Can help you determine:

• How do they obtain business? • Do they have specialty areas? • Do they engage third-parties? • Are they also an originator? • Other relevant details

NMLS - Forms

NMLS – Forms

Four basic “forms”: • MU1 – Company • MU2 – Control persons & other individuals • MU3 – Branch office • MU4 – Individual licensee (mortgage loan originator)

Non-NMLS Resources

Agency Specific Information

CFPB Complaint Portal & SES Complaints

Servicer’s Website

Google Search

Are there any other resources you use?

Resources CFPB Examination Procedures, Mortgage Servicing: • https://www.consumerfinance.gov/compliance/supervision examinations/mortgage-servicing-examination-procedures/ MMC Mortgage Examination Manual: • chrome extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.csbs.org /sites/default/files/2019 05/MMC%20Mortgage%20Examination%20Manual%20v2%20- %20May%202019.pdf

Loan Review Sample

Exercise

• Select judgmental sample of 10 loans • Be prepared to discuss

Mortgage Servicing Examiner Training Financial Analysis

Financial Analysis

MORTGAGE SERVICERS

BALANCE SHEET RISKS

EARNINGS RISKS

CAPITAL RISKS LIQUIDITY RISKS

PRUDENTIAL SERVICING STANDARDS

Mortgage Servicers

Mortgage Servicer In the business of receiving scheduled payments from a borrower pursuant to the terms of: • Mortgage note • Mortgage servicing documents or contract

Mortgage Servicer Handles payment processing and monthly statements

Mortgage Servicer Master Servicer • Owns right to perform servicing • May do through a sub-servicer

Mortgage Servicer

Sub-Servicer • Does servicing on behalf of master servicer • Receives monthly fixed per-loan fee

Mortgage Servicer Servicers must advance funds • To investors, in case of borrower default • To insurers and tax assessors, if escrow account underfunded Moderate to High Risk Sub-servicers don’t have those risks.

Mortgage Servicer

Mortgage Servicing Rights (MSRs)

Lenders may retain or sell MSRs into the market

Master servicer may service loan, or contract out to a sub-servicer

MSR Owner must advance funds: • To investors, in case of borrower default • To insurers and tax assessors, if escrow account underfunded Moderate to High Risk

Mortgage Servicer

Question: What are some financial risks Mortgage Servicers have?

Balance Sheet Risks

Balance Sheet Risks

Mortgage Servicing Rights • Market Factors Impact Value • Valuation Model • Hedging

Balance Sheet Risks

Servicing Advance Receivables • Required advances • Capital • Borrowing Lines • Aging • Securitization

Balance Sheet Risks

Cash is KING • Sufficient Cushion • Unfunded Loan Commitments (Reverse Mortgages, HELOCs, etc.)

Earnings Risks

Earnings Risks

The servicing business also creates risks related to earnings • Cash • MSR Income • Market Risk • Other Income • Cash Flows • Hedging

Capital Risks

Capital Risks Capital risks are significant when conducting servicing activities • Adequacy • Funding Servicing Advances • Level & Trend • Dividends

Liquidity Risks

Liquidity Risks

Borrowing lines are generally matched to the duration of the asset they fund • Short-Term Borrowing Lines • Long-Term Borrowing Lines

Prudential Servicing Standards

Prudential Servicing Standards

CSBS Final Model State Regulatory Prudential Standards for Nonbank Mortgage Servicers

FHFA-Ginnie Mae Eligibility Requirements Comparison Tables

2015-FAQs

Prudential Servicing Standards

Follow FHFA Requirements CSBS Final Model Standards

•Read thoroughly to gain understanding of what is intended & specific exclusions •Notably, wholly owned loans, reverse mortgages, & loans serviced for others are excluded from calculations •Pure sub ‐ servicers only required to comply with capital & liquidity provisions Financial Condition Requirements •Capital • Liquidity

Prudential Servicing Standards Capital Definition: Tangible Net Worth •Total Equity •LESS Goodwill & Other Intangible Assets •LESS Affiliated Receivables & Pledged Assets Net of Associated Liabilities •LESS Deferred Tax Assets Net of Deferred Tax Liabilities

Prudential Servicing Standards

Capital Minimum Capital

•Minimum Net Worth: $2.5 million •ADD 25 bps of Enterprise Servicing •ADD 35 bps of Ginnie Mae Servicing •ADD 25 bps of PLS & Other Servicing Capital Ratio ≥ 6% •Tangible Net Worth / Total Assets

Prudential Servicing Standards

Liquidity

Special Note: Consistent with Fannie Mae, Freddie Mac and Ginnie Mae, allowable sources of liquidity shall not include unused/available portions of committed servicing advance lines of credit or other unused/available portions of credit lines such as normal operating business lines.

Prudential Servicing Standards

Base Liquidity is the sum of: Enterprise Servicing • Scheduled/Scheduled: 7 bps

• Scheduled/Actual: 7 bps • Actual/Actual: 3.5 bps

Ginnie Mae Servicing: 10 bps PLS & Other Servicing: 3.5 bps

Prudential Servicing Standards

Origination Liquidity 50 bps of: •Loans Held For Sale, PLUS •Pipeline Loans with Rate Lock Commitments (after fallout adjustments) Check your state statutes/regulations to see if they exclude companies with <$1 billion in originations in the last four quarters.

Questions

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Mortgage Servicing Examiner Training Policy Review

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Session Learning Objectives: 1. Understand the role a mortgage servicer’s policies & procedures play in their compliance program

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Session Learning Objectives: 2. Learn how to review & analyze a mortgage servicer's policies

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Session Learning Objectives: 3. Discuss an examiner's approach to assessing a mortgage servicer's policies & procedures

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Session Learning Objectives: 4. Identify the relevant policies & procedures that should be

implemented by a mortgage servicing company

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Session Learning Objectives: 5. Review sample mortgage servicing company policies that contain identifiable weaknesses

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Policy Review

Management should own their own policies.

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Policy Review

Board should: • Ensure policies are implemented & procedures established for periodic review • Review is an opportunity to assess management & revise policies if needed • Ensure policies are reviewed & approved periodically

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Policy Review Procedures should document and be sufficiently detailed to implement the board-approved policy documents.

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Policy Review Examiners should determine whether policies & procedures: 1. Designed to effectively manage risk in the products, services and activities of the mortgage company. 2. Consistent with approved compliance policies. 3. Address compliance with applicable Federal consumer financial laws in a manner designed to minimize violations and to detect and minimize associated risks of harm to consumers.

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Policy Review Examiners should determine whether policies & procedures: 4. Cover full lifecycle of all products and/or services offered. 5. Maintained and modified to remain current and complete, and to serve as a reference for employees.

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Policy Review

Effective policies and procedures are living

Effective policy and procedure management goes well beyond simply crafting an initial set of documents.

documents that must grow and adapt with a company and regulatory environment.

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Policy Review

Best Practice –a Company reviews all its policies & procedures annually.

Review can be scheduled into the corporate calendar.

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Policy Review

• Current & relevant? • Being implemented as intended? • Having the desired effect? Questions to consider for policies & procedures:

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Policy Review

• Organizational changes • New/amended laws or regulations • New loan programs/products • Incidents or policy violations Other events that warrant a review of policies & procedures:

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Policy Review

New policies need to be communicated immediately & effectively. Examiners should consider:

• How does an institution

communicate policy changes?

• How do employees access policies & procedures?

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Policy Review

A company’s policies and procedures should be commensurate with its size and complexity.

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Policy Review

• Written & readily available • Prevent/reduce violations • Protect consumers & Company • Align business strategies & outcomes Compliance Program should include policies & procedures that are:

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Policy Review Policies & procedures should be: • Implemented by management • Administered by CCO • Tailored to the company • Control risk • Independently audited

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Exam Procedures

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Exam Procedures Request & review policies & procedures related to consumer compliance, including (as applicable): •Consumer contact practices • Incentive structures (compensation & non ‐ compensation based)

•Federal consumer financial laws •State ‐ specific laws & regulations

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Exam Procedures Do policies & procedures address new or amended Federal and state consumer financial laws implemented since the previous examination?

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Exam Procedures Have policies & procedures been updated since the last exam? • Who is responsible for updates? • Who is responsible for implementing changes?

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Exam Procedures Review policies & procedures relating to compliance with specific regulatory requirements & their implementing procedures.

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Exam Procedures Review policies & procedures for: • Outdated content • Names of unaffiliated entities • Indicators that policies are not tailored to the company

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Exam Procedures Review policies & procedures for risk of unfair, deceptive, or abusive practices.

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Exam Procedures Determine whether policies & procedures related to a company’s escrow account

maintenance program includes force-placed insurance.

Independent process for investigating improper behavior?

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Exam Procedures Determine whether policies & procedures provide clear guidance for managing portfolio risk.

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Exam Procedures

Review policies & procedures for features that may pose heightened risk of discrimination.

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Exam Procedures Review policies & procedures maintained by different units or legal entities for

consistency and reasonableness.

Instances of inconsistency should be justified by business necessity or market condition.

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Exam Procedures Review policies & procedures for record retention & destruction timeframes to ensure compliance with legal requirements.

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Exam Procedures If compliance procedures are embedded in automated tools, are periodic reviews performed? Were tools approved by the Board or committee thereof?

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Exam Procedures Coordinate compliance examination activities with members of the examination team & the EIC. • Identify violations • Exam findings/issues related to P&Ps? • Absence of P&Ps? • P&Ps periodically reviewed?

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Exam Procedures Utilize discussions with the Company’s mangers to gather information and discuss procedures & practices to ensure compliance with laws & regulations.

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Exam Procedures Draw conclusions about policies & procedures: • Are they strong, satisfactory, deficient, seriously deficient, or critically deficient? • Do P&Ps match actual company/employee processes?

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Evaluation of Policies

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Evaluation of Policies

Strong Satisfactory Deficient

Seriously Deficient

Critically Deficient

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Evaluation of Policies

P&Ps are comprehensive and provide standards to effectively manage compliance risk in the products, services, and activities of the financial institution.

Strong

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Evaluation of Policies

P&Ps are adequate to manage the compliance risk in the products, services, and activities of the financial institution.

Satisfactory

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Evaluation of Policies

P&Ps are inadequate at managing the compliance risk in the products, services, and activities of the financial institution.

Deficient

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Evaluation of Policies

P&Ps are seriously deficient at managing the compliance risk in the products, services, and activities of the financial institution.

Seriously Deficient

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Evaluation of Policies

P&Ps are critically absent in programs to manage compliance risk in the products, services, and activities of the financial institution.

Critically Deficient

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Matching Exercise

MATCH THE RATING TO THE EXAMPLES PROVIDED

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Zoom Annotation Tool

Click View Options at the top then click Annotate

Click the Draw Tool then the double arrow

MATCH THE RATING TO THE EXAMPLES PROVIDED

Servicer has comprehensive policies and procedures in place to manage compliance risk effectively and proactively in the products and services that it provides. Servicer is well managed and not prioritized for a subsequent examination. Servicer has not adequately maintained its policies and procedures which heightens the risk of consumer harm. Servicer is being actively monitored due to matters requiring attention identified during previous examinations. Servicer has effective policies and procedures in place with some minor weaknesses that could be strengthened with further review and training. Servicer has no significant findings or material weaknesses flagged from recent examinations.

STRONG

SATISFACTORY

DEFICIENT

MATCH THE RATING TO THE EXAMPLES PROVIDED

Servicer has a complete disregard for maintaining policies and procedures and management is absent in monitoring practices that lead to significant consumer harm. Servicer has been subjected to a forced transfer of its portfolio.

SERIOUSLY DEFICIENT

Servicer is ineffective at managing risks through its policies and procedures which are not updated timely or comprehensive in nature. Servicer is subject to reputational risk from regulatory enforcement actions.

CRITICALLY DEFICIENT

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Policies & Procedures

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Policies & Procedures

Request P&Ps related to mortgage compliance for servicing, specifically: • Consumer Compliance • State/Federal Consumer Financial Laws • Consumer Financial Products & Service

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Policies & Procedures

Examiners should review P&Ps and consider: • Understandable • Effective dates • Last reviewed • Review frequency • Who reviews • Is content updated periodically?

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Corporate Governance

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Corporate Governance When evaluating a servicer’s commitment to corporate governance examiners must focus on whether the Company has a board of directors or similar structure responsible for all aspects of corporate oversight It is critical that this oversight include a corporate governance framework built upon programs for: •Risk management – identify, measure, monitor & control risk • Internal & external audit

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Corporate Governance Evaluate the board of directors for their responsibilities in:

 Establishing a written corporate governance framework  Monitoring and ensuring company compliance with the corporate governance framework

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Corporate Governance

Board of Directors – What should examiners look for?

Determine board committee structures and delegated responsibility and reporting lines for matters, such as to an audit committee or risk committee.

Review the meeting minutes and supporting materials of those committees for coverage of compliance matters.

Review the annual risk assessment and determine whether the company addressed the risks appropriately.

Review policies and procedures for changes management committed to make following monitoring, audit, and examination findings and recommendations.

Review board or committee consideration of audit matters for coverage of key risks, independence from business functions, and resolution of identified issues.

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Corporate Governance

 The board of directors shall establish internal audit requirements that are appropriate for the size, complexity, and risk profile of the servicer.  Internal auditors must be allowed to operate with appropriate independence to provide a reliable evaluation of the servicer’s internal control structure, risk management and governance.  It is critical to review the Board established internal audit requirements and the results of internal audits.

Internal Audits

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Corporate Governance

 Covered Institutions should receive an external audit, including financial statements, conducted by an independent public accountant annually.  The external audit shall include at a minimum: o Annual financial statements prepared in accordance with GAAP. o Assessment of the internal control structure. o Computation of tangible net worth. o Validation of MSR valuation and reserve methodology, if applicable. o Verification of adequate fidelity and errors and omissions (E&O) insurance. o Testing of controls related to risk management activities, including compliance and stress testing, where applicable.

External Audits

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Corporate Governance

Risk Assessment

Servicers must establish a risk management program under the oversight of the board of directors that identifies, measures, monitors, and controls risk sufficient for the level of sophistication of the servicer.

A risk assessment must be conducted by a company on an annual basis concluding with a formal report to the board of directors.

Evidence of risk management activities throughout the year must be maintained and made part of the report, including findings of issues and the response to address those findings.

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Corporate Governance The Risk Management Program must be scaled to the complexity of the organization, but be sufficiently robust to manage risks in these areas:

Liquidity Risk

Operational Risk

Credit Risk

Market Risk

Compliance Risk

Reputation Risk

Legal Risk

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Policies & Procedures - Resource

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Resources • MMC Manual - Compliance Management System Exam Procedures: https://www.csbs.org/mortgage-examination-supplements • CFPB Compliance Management Exam Procedures: https://files.consumerfinance.gov/f/documents/201708_cfpb_complian ce-management-review_supervision-and-examination-manual.pdf

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Exercise

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Mortgage Servicing Examiner Training Loan File Review

Session Learning Objectives: 1. Learn how to review and analyze

a mortgage servicing file

Session Learning Objectives: 2. Understand the applicable regulations and what documentation to review

Session Learning Objectives: 3. Apply concepts to exam scenario exercises

Loan File Selection

Loan File Selection

Risk Based

Judgmental Loan Sample

Key Things to Look For

Statistical Loan Sample

Numerous Unrelated Violations

Loan Boarding

Rules & Regulations  12 C.F.R. § 1024.33  Fair Debt Collection Practices Act 15 U.S.C. § 1692g  GLBA 15 U.S.C. § 6803(a)

Documents

Welcome Letters Quality Control Reports Payment Histories Note Privacy Notice

Documents

Notice of Transfer Validation of Debt letters In Transit Workouts • Communication logs • Workout plans Initial Debt Collection Letters

Review

Date of Transfer Timing of Notice

Payments during transfer In transit loss mitigation

Timing of letter Content of letter

Quality Control / Data Integrity Verify loan boarding information is accurate in accordance with loan Review QC over loan boarding

Timing of Letters Transferor notice to be sent not less than 15 days before date of transfer Transferee notice sent not more than 15 days after date of transfer Combined notice sent not less than 15 days before date of transfer

Contents of Letter • Date of Transfer • Name, address & toll ‐ free number for inquiries Date transferor will cease to accept payments & transferee will begin If transfer affects availability of optional insurance(s) Statement that transfer does not affect terms/condition of mortgage loan

Workouts

Payments

Pending workouts at time of transfer must be reviewed

Payments made to transferor should not incur late fees (60 days) Payments should be sent promptly to Transferee

Verify terms of note are accurate within system

Review

Who the servicer is Loan boarding • Status of loan Contents of notice

• Amount of debt • Name of creditor

• Assumed valid • How to dispute • Name of original creditor upon written request

Hello Letter Exercise

Privacy Notice

Rules & Regulations  Gramm-Leach-Bliley Act

 15 U.S.C. § 6803(a)  15 U.S.C. § 6801(b)

Documents Annual Privacy Notices Privacy notice upon boarding

Review Protecting Borrower information

Contents of notice  Policies & practices

 Categories of personal information  Policies – confidentiality & security  Disclosures required

Escrow

Rules & Regulations  Regulation X (RESPA)  12 C.F.R. § 1024.17(g) – Escrow Accounts

Rules & Regulations  Regulation X (RESPA)  12 C.F.R. § 17(e) – Timely Escrow Payments and Treatment of Escrow Account Balances

Documents Annual Escrow Statements

Payment Histories Communication logs

Review

Limits on payments to escrow accounts Timing of statement Refund of escrow overages

Review

Escrow shortages Escrow deficiencies Escrow disbursements Timely payments

Escrow Analysis Exercise

Periodic Statements

Rules & Regulations  12 C.F.R. § 1026.41

Documents

Periodic statements Payment history Note Closing Disclosure Communication logs

Review Disbursement of periodic statements  Joint obligors  Agreement / consent to receive electronically  Demonstrated ability to access online

Review

Timing of statement  Within 4 days  Reasonably prompt

Review Content of periodic statements  Certain items required  Grouped together in close proximity to each other

Review

First Page Items  Amount Due

Other Items (not required to be on the first page)

 Explanation of Amount Due  Past Payment Breakdown  Contact Information  Partial Payment Information  Delinquency Information

 Transaction Activity  Account Information

Review

First Page Items

• Top of the first page •Payment Due Date •Late Fee & Date Assessed •Amount Due ‐ prominent

•Monthly Payment Amount •Sum of Fees/Charges •Any Payment Amount Past Due

Explanation

AmountDue

Review

First Page Items

•Total Payments Received Since Previous Statement •Total Payments Received Since Beginning of Year

•Toll Free Telephone Number •E ‐ mail Address

Contact Info

Past Payment

Review First Page Items or Separate Page/Letter Enclosed with Statement Partial Payment Information Delinquency Information ( > 45 days)

• Length of delinquency • Possible risks • Account history • Loss mitigation program

•When a partial payment was placed in suspense or unapplied funds account • Include what must be done

• Foreclosure process • Total amount needed • Homeownership counselor info

Review Other Items – Not Required on the First Page Transaction Activity • Listed with date, description

Account Information • Outstanding principal balance • Current interest rate • Date rate may next change • Prepayment penalty • Homeownership counselor info

& transaction amount that causes a credit or debit to amount currently due

Review

Exemptions

Coupon Books

•Fixed rate loans •Amount Due on each coupon •Contact information • Delinquency information must be provided in writing when consumer is more than 45 days delinquent

Review

Exemptions

Small Servicers

•Periodic statements not required •Services 5,000 or fewer loans (including affiliates) •Housing Finance Agency •Non ‐ profit entity services 5,000 or fewer loans (including associated non ‐ profit entities)

Review

Exemptions Certain Consumers in Bankruptcy

•Consumer requests in writing to cease providing • Bankruptcy plan provides for surrender of dwelling •Court order – avoidance of lien or cease providing •Consumer files statement of intention to surrender dwelling • Exemption no longer exists if consumer reaffirms personal liability or requests to receive unless court orders cease

Review

Exemptions Successor in Interest •Not required unless/until successor assumes mortgage or provides servicer with acknowledgement not revoked

Charged Off Loans Reverse Mortgages Timeshares

Review Sample Forms – 12 C.F.R. § 1026, Appendix H  Periodic Statement  Periodic Statement – Delinquency Box  Periodic Statement – Payment-Option  Clause for Homeownership Counselor Contact Information

 Periodic Statement – Chapter 7 & 11  Periodic Statement – Chapter 12 & 13

Periodic Statement Exercise

Mortgage Insurance

Rules & Regulations  12 U.S.C. § 4902  Termination of Private Mortgage Insurance  12 U.S.C. § 4903  Disclosure Requirements

Documents Annual disclosure notice Borrower requests for cancellation Communication logs Payment history

Review

Notices provided annually  May be included in annual escrow statement or annual IRS interest payments disclosure Contents of annual disclosures  Rights of borrower to cancellation or termination of PMI  Address & phone number to contact servicer to determine whether borrower may cancel PMI

Review

Loan-to-Value (LTV)  Measure comparing amount of mortgage with appraised value of property Requests for cancellation or automatic cancellations  Borrower may request cancellation in writing when LTV reaches 80%  Automatic cancellation must occur when LTV reaches 78%  Final termination must occur the month after loan reaches midpoint of amortization schedule Return of unearned premiums  No later than 45 days after termination or cancellation

Mortgage Interest Statement

Rules & Regulations  26 C.F.R. § 1.6050H-2  State rules & regulations

Documents

Year-end statement Payment history

Review

Statement • Timing • Content

Interest Rate Adjustments

Rules & Regulations  12 C.F.R. § 1026.20

Documents Note

ARM Notices Rate Index

Review

Rate parameters • Index, cap, floor, etc. Accuracy of rate change Timing of notification Contents of notification

ARM Notice Exercise

Payments

Rules & Regulations  12 C.F.R. § 1026.36

Documents

Payment History Communication logs

Review

Payment receipt dates Partial payment application Payment application dates Late fee pyramiding

Force-Placed Insurance

Rules & Regulations  Regulation X (RESPA)  12 C.F.R. § 1024.37 – Force-Placed Insurance

Documents Notice of force-placed coverage Force-placed policy Notice of cancellation Escrow disbursement history

Escrow Statement Communication logs

Review

Timing of notices Contents of notice Verify cancellation Last known coverage Was account escrowed? Borrower responses/communication

Review Required Notices & Timing  Initial written notice  45 days prior  Reminder notice  15 days prior

Review

Contents of notices  Initial notice – 12 C.F.R. § 1024.37(c)(2)  Date of notice  Servicer & borrower information  Servicer telephone number for inquiries  Several varying statements specific to property & force-placed insurance

Review Reminder Notice - 12 C.F.R. § 1024.37(d)(2)(i)  When servicer receives no hazard insurance information in response to Initial Notice  Date of notice  Statement that notice is second and final  Same information from Initial Notice  Cost of force-placed insurance

Review Reminder Notice - 12 C.F.R. § 1024.37(d)(2)(ii)  When servicer received some hazard insurance information but lacks evidence of continuous coverage  Date of notice  Some similar language from Initial Notice  Statement servicer received the hazard insurance information borrower provided  Statement requesting borrower to provide missing information  Statement borrower will be charged for insurance the servicer purchased or purchases

Review

Verify cancellation

 Within 15 days of receiving

Last known coverage Was account escrowed?

 If yes, review escrow documents Borrower responses/communication

Force-Placed Insurance Exercise

Error Resolution & Request for Information

Rules & Regulations  12 C.F.R. § 1024.35  12 C.F.R. § 1024.36

Documents

Borrower correspondence Communication logs Acknowledgement notice Response

Review

Borrower request Response/acknowledgement Effect on remedies

Payoffs

Rules & Regulations  12 C.F.R. § 1026.36

Documents

Payment statement Payoff statement request Communication logs

Review

Contents of statement Outstanding balance Timing of statement

Payoff StatementExercise

Early Intervention

Rules & Regulations  12 C.F.R. § 1024.39

Rules & Regulations Not later than 36 th day after borrower misses payment:  Servicer shall establish or make good faith efforts to establish live contact with a delinquent borrower  Also required after each payment due date while delinquent  Live contact - discuss cause of delinquency & inform borrower about loss mitigation options  Live contact includes speaking on the phone or conducting a meeting, but not leaving a phone message  Good faith efforts consist of reasonable steps to reach borrower – telephoning more than once & sending communication encouraging borrow to establish live contact

Written Notices – Day 45 No later than 45 th day after borrower misses a payment: •Servicer shall provide delinquent borrower written notice describing available loss mitigation options & how to apply for •Written notice is required no later than 45 days after each payment due date while the borrower remains delinquent •Servicer is not required to provide notice more than once during any 180 ‐ day period

Content of the Written Notice The early intervention written notice must contain the following: • Statement encouraging borrower to contact servicer • Telephone number to access servicer’s assigned personnel & servicer’s mailing address • If applicable, a statement providing a brief description of examples of loss mitigation options that may be available from the servicer

Content of the Written Notice The early intervention written notice must contain the following: • If applicable, either application instructions or a statement informing borrower how to obtain more information about loss mitigation options from servicer •Website to access either the Bureau list or the HUD list of homeownership counselors or counseling organizations & HUD toll ‐ free telephone number to access homeownership counselors or counseling organizations

Borrowers in Bankruptcy • Any borrower on a mortgage loan is a debtor in bankruptcy under title 11 of the United States Code • A servicer, with regard to that mortgage loan is exempt from the live contact requirement & early intervention written notice requirement if no loss mitigation option is available • Servicer is also exempt from providing the early intervention written notice if any borrower on the mortgage loan has provided a notification pursuant to FDCPA § 805(c) (15 U.S.C. 1692c(c)) with respect to their mortgage loan

Borrowers in Bankruptcy A servicer must resume compliance with live contact & early intervention written notice requirements after the next payment due date that follows the earliest of the following events: • Bankruptcy case is dismissed; • Bankruptcy case is closed; and • Borrower reaffirms personal liability for the mortgage loan With a mortgage loan for which borrower has discharged personal liability pursuant to 11 U.S.C. 727, 1141, 1228, or 1328, a servicer: is not required to resume compliance with live contact requirement but must resume compliance with early intervention written notice requirement if borrower has made any partial or periodic payment on loan after commencement of borrower's bankruptcy case

Documents

Early Intervention Letters Communication logs

Review

Delinquency of borrower Borrower communication Timing of notices Contents of notice Borrowers in bankruptcy

Continuity of Contact

Rules & Regulations  12 C.F.R. § 1024.40

Rules & Regulations  Servicer shall maintain policies & procedures reasonably designed to assign personnel to assist delinquent borrower with loss mitigation options  Not later than 45 th day of a borrower’s delinquency, servicer must:  Assign personnel to delinquent borrower  Make available to delinquent borrower personnel assigned to assist borrower, who must: • Provide responses in a timely manner • Assist with loss mitigation options until borrower has made, without incurring a late charge, two consecutive payments in accordance with terms of a permanent loss mitigation agreement

Rules & Regulations  Servicer shall maintain policies & procedures reasonably designed to ensure that servicer personnel assigned to a delinquent borrower must be able to:  Provide accurate information  Retrieve information in a timely manner  Provide documents & information to other persons required to evaluate the borrower for loss mitigation options  Provide information about procedures for submitting a notice of error (§ 1024.35) or information request (§ 1024.36)

Rules & Regulations  Servicing personnel must be able to retrieve in a timely manner:  A complete record of borrower's payment history; and  All written information borrower has provided to servicer, and if applicable, to prior servicers, in connection with a loss mitigation application  Servicing personnel must also be able to provide these types of documents to other persons required to evaluate the borrower for loss mitigation options

Documents

Early intervention notice Communication logs

Review

Borrower communication

Loss Mitigation

Rules & Regulations  12 C.F.R. § 1024.39  12 C.F.R. § 1024.41  CARES Act

Documents

Communication logs Borrower requests for workout options Financial packages received from borrowers Requests for additional information Loan review & calculations for workouts Payment Agreements Modification Agreements Payment history

Review Receipt of complete application

 Must have all information required by servicer  Servicer reviews for completeness & must acknowledge receipt within 5 days  If missing information, notice must be sent to borrower stating additional documents needed & providing reasonable date to submit

Review Notice of Completeness should include:  Application is complete  Date of receipt  Expectations of completed evaluation within 30 days  Borrower is entitled to foreclosure protections  Servicer may need additional information at later date  Borrower may be entitled to additional protections under State or Federal law

Review Servicer not required to provide notice:

 Notice has already been provided of complete application  If incomplete more than 37 days before a foreclosure sale  Previous notice has been provided

Review Communication with borrower Receipt of loss mitigation application Status of foreclosure against borrower

Contents of Letter Timing of Letters

Quality Control / Data Integrity Verify loan boarding information is accurate in accordance with loan Review QC over loan boarding

Workouts

Payments

Payments made to transferor should not incur late fees (60 days) Payment should be sent promptly to Transferee

Pending workouts at time of transfer must be reviewed

Transferor notice sent not less than 15 days before date of transfer Transferee notice sent not more than 15 days after date of transfer Combined notice sent not less than 15 days before date of transfer

Date of Transfer

Name, address & toll free number for inquiries Date transferor will cease to accept payments and transferee will begin If transfer affects availability of optional insurance(s) Statement that transfer does not affect terms/condition of mortgage loan

Verify terms of note are accurate within system

Loss Mitigation Acknowledgment Exercise

Foreclosure

Rules & Regulations  12 C.F.R. § 1024.41  State Regulations

Types of Foreclosure

Non ‐ Judicial

Judicial

Bankruptcy

Rules & Regulations  11 U.S.C. § 362  12 C.F.R. §1026.41(e)(5)  Federal Rules of Bankruptcy Procedure

 Rule 3002.1(b)  Rule 3002.1(c)

Documents

Proof of Claims Borrower notices Communication logs Periodic statements

Review Treatment of loans for borrowers in Bankruptcy Violations of Bankruptcy Rule Borrower communication Periodic Statements

Bankruptcy Exercise

Collection Activities

Rules & Regulations  National Housing Act 12 U.S.C. § 1701X c (5)  Availability of counseling  Timing of notifications

Rules & Regulations  Fair Debt Collection Practices Act 15 U.S.C. § 1692  1692c § 805 – Communication in connection with debt collection  1692d § 806 - Harrassment or abuse  1692f § 808 - Unfair practices