Introduction to Mortgage Servicing Training - March 2024
Introduction to Mortgage Servicing Examinations Training
March 5-14, 2024 Live Virtual
@ www.csbs.org � @csbsnews
CONFERENCE OF STATE BANK SUPERVISORS 1129 20th Street NW / 9th Floor / Washington, DC 20036 / (202) 296-2840
Introduction to Mortgage Servicing Examinations Training March 5-14, 2024
Week 1 Tuesday, March 5 1:00 pm – 1:45 pm 1:45 pm – 2:15 pm 2:15 pm –2:30 pm 2:30 pm - 3:00 pm 3:00 pm – 4:00 pm Wednesday, March 6 1:00 pm – 1:15 pm 1:15 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 4:00 pm Thursday, March 7 1:00 pm – 1:15 pm 1:15 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 4:00 pm Week 2 Tuesday, March 12 1:00 pm – 1:30 pm 1:30 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 4:00 pm
Introductions & Welcome Mortgage Reg Overview
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Scoping an Examination Exam Scoping Exercise
Prior Day Review
Basics of Financial Analysis
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Basics of Financial Analysis
Prior Day Review
Policy Review
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Policy Review Exercise
Prior Week Review Loan File Review
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Loan File Review
Wednesday, March 13 1:00 pm – 1:15 pm 1:15 pm – 2:15 pm 2:15 pm – 2:30 pm 2:30 pm – 4:00 pm St Thursday, March 14 1:00 pm – 1:15 pm
Prior Day Review Loan File Review
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Loan File Review
Prior Day Review
Effective Meetings
1:15 pm – 1:45 pm 1:45 pm – 2:00 pm
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Effective Meetings Exercise
2:00 pm – 3:25 pm
Conclusion
3:25 pm – 3:30 pm
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Mortgage Servicing Examiner Training Introduction
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Zoom
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Schedule This Week Tuesday, March 5 th : 1-4 PM ET Wednesday, March 6 th : 1-4 PM ET Thursday, March 7 th : 1-4PMET Next Week Tuesday, March 12 th : 1-4PMET Wednesday, March 13 th : 1-4 PM ET Thursday, March 14 th : 1-4 PM ET
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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 Rich 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
FUN FACT ABOUT YOURSELF
NAME
AGENCY AND STATE
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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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Mortgage Regulation Overview
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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
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Session Learning Objectives: 1. Identify resources
that are helpful in scoping servicing examinations
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Session Learning Objectives: 2. Understand how
to leverage the NMLS for exam scoping
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Session Learning Objectives: 3. Apply concepts to exam scenario exercises
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Group Question
You have been assigned as EIC to your first mortgage servicing exam. What are some sources of information you will review to develop the scope of the exam and the examination plan?
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Group Question
What are your criteria for selecting your loan review sample?
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Scoping Tools
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Mortgage Call Reports (MCR) MCRs provide information regarding a company’s servicing activity and financial condition
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MCRs Two versions: 1. Expanded 2. Standard
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NMLS Analytics
Two powerful analytic tools to assist you in scoping exams: • Mortgage Examiners’ Report • MCR Analytics
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Accessing NMLS Analytics
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Mortgage Examiners Report
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Key Indicators
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NMLS – Composite View
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NMLS – Composite View
Provides access to a wide range of useful information
regarding: • Company • Branch • Individual
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Business Plans
An excellent source of information for scoping!
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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
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NMLS - Forms
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NMLS – Forms
Four basic “forms”: • MU1 – Company • MU2 – Control persons & other individuals • MU3 – Branch office • MU4 – Individual licensee (mortgage loan originator)
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Non-NMLS Resources
Agency Specific Information
CFPB Complaint Portal & SES Complaints
Servicer’s Website
Google Search
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Are there any other resources you use?
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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
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Loan Review Sample
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Exercise
• Select judgmental sample of 10 loans • Be prepared to discuss
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Mortgage Servicing Examiner Training Financial Analysis
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Financial Analysis
MORTGAGE SERVICERS
BALANCE SHEET RISKS
EARNINGS RISKS
CAPITAL RISKS LIQUIDITY RISKS
PRUDENTIAL SERVICING STANDARDS
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Mortgage Servicers
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Mortgage Servicer In the business of receiving scheduled payments from a borrower pursuant to the terms of: • Mortgage note • Mortgage servicing documents or contract
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Mortgage Servicer Handles payment processing and monthly statements
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Mortgage Servicer Master Servicer • Owns right to perform servicing • May do through a sub-servicer
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Mortgage Servicer
Sub-Servicer • Does servicing on behalf of master servicer • Receives monthly fixed per-loan fee
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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.
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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
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Mortgage Servicer
Question: What are some financial risks Mortgage Servicers have?
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Balance Sheet Risks
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Balance Sheet Risks
Mortgage Servicing Rights • Market Factors Impact Value • Valuation Model • Hedging
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Balance Sheet Risks
Servicing Advance Receivables • Required advances • Capital • Borrowing Lines • Aging • Securitization
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Balance Sheet Risks
Cash is KING • Sufficient Cushion • Unfunded Loan Commitments (Reverse Mortgages, HELOCs, etc.)
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Earnings Risks
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Earnings Risks
The servicing business also creates risks related to earnings • Cash • MSR Income • Market Risk • Other Income • Cash Flows • Hedging
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Capital Risks
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Capital Risks Capital risks are significant when conducting servicing activities • Adequacy • Funding Servicing Advances • Level & Trend • Dividends
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Liquidity Risks
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Liquidity Risks
Borrowing lines are generally matched to the duration of the asset they fund • Short-Term Borrowing Lines • Long-Term Borrowing Lines
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Prudential Servicing Standards
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Prudential Servicing Standards
CSBS Final Model State Regulatory Prudential Standards for Nonbank Mortgage Servicers
FHFA-Ginnie Mae Eligibility Requirements Comparison Tables
2015-FAQs
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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
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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
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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
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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.
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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
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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.
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Questions
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Mortgage Servicing Examinations 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
What do you think is most important when reviewing policies?
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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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Poll Question: A mortgage servicer shall establish or make good faith efforts to establish live contact with a delinquent borrower no later than how many days of a borrower's delinquency?
• 30 days • 36 days • 45 days • 60 days
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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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Poll Question: A servicer’s Private Mortgage Insurance (PMI) policy complies with the Homeowners Protection Act if termination of this coverage automatically occurs when the principal balance of the mortgage has been paid down to what percentage of the original value of the home?
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Policy Review
• Organizational changes • New/amended laws or regulations • New loan programs/products • Incidents or policy violations Events that may 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
• 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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Poll Question: A servicer is following federal law for maintaining a cushion in a borrower’s escrow account that does not exceed one fifth (1/5) of the estimated total annual payments held in the account. True or False?
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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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Poll Question: Servicers that are collecting borrower payments on loans that it also originated are not subject to the Fair Debt Collection Practices Act. True or False?
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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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Poll Question: A servicer must send a notice of transfer of loan servicing when the transfer has occurred between master servicers without changing the subservicer. True or False?
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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 managers to gather information and discuss procedures & practices to ensure compliance with laws & regulations.
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Exam Procedures Draw conclusions about policies & procedures: • Do P&Ps match actual company/employee processes?
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Poll Question: What tax form does a mortgage servicer use to report interest paid by a borrower during the preceding calendar year? • 941
• 1040 • 1099 • 1098
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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
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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
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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
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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
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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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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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Poll Question: Before a servicer assesses a borrower for any premium charge or fee related to force-placed insurance, within how many days must the servicer provide the initial written notice to the borrower?
• 30 days • 60 days • 45 days • 15 days
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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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Poll Question: Flood insurance is a form of hazard insurance required by?
• Flood Disaster Protection Act of 1973 • Real Estate Settlement Procedures Act • Equal Credit Opportunity Act • Truth in Lending Act
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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
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Session Learning Objectives: 1. Learn how to review and analyze
a mortgage servicing file
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Session Learning Objectives: 2. Understand the applicable regulations and what documentation to review
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Session Learning Objectives: 3. Apply concepts to exam scenario exercises
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Loan File Selection
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Loan File Selection
Risk Based
Key Things to Look For
Judgmental Loan Sample
Statistical Loan Sample
Numerous Unrelated Violations
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Loan Boarding
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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)
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Documents
Welcome Letters Quality Control Reports Payment Histories Note Privacy Notice
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Documents
Notice of Transfer Validation of Debt letters In Transit Workouts • Communication logs • Workout plans Initial Debt Collection Letters
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Review
Date of Transfer Timing of Notice
Payments during transfer In transit loss mitigation
Timing of letter Content of letter
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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
12
Internal Use Only
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
13
Internal Use Only
Hello Letter Exercise
14
Internal Use Only
Privacy Notice
15
Internal Use Only
Rules & Regulations Gramm-Leach-Bliley Act
15 U.S.C. § 6803(a) 15 U.S.C. § 6801(b)
16
Internal Use Only
Documents Annual Privacy Notices Privacy notice upon boarding
17
Internal Use Only
Review Protecting Borrower information
Contents of notice Policies & practices
Categories of personal information Policies – confidentiality & security Disclosures required
18
Internal Use Only
Escrow
19
Internal Use Only
Rules & Regulations Regulation X (RESPA) 12 C.F.R. § 1024.17(g) – Escrow Accounts
20
Internal Use Only
Rules & Regulations Regulation X (RESPA) 12 C.F.R. § 17(e) – Timely Escrow Payments and Treatment of Escrow Account Balances
21
Internal Use Only
Documents Annual Escrow Statements
Payment Histories Communication logs
22
Internal Use Only
Review
Limits on payments to escrow accounts Timing of statement Refund of escrow overages
23
Internal Use Only
Review
Escrow shortages Escrow deficiencies Escrow disbursements Timely payments
24
Internal Use Only
Escrow Analysis Exercise
25
Internal Use Only
Periodic Statements
26
Internal Use Only
Rules & Regulations 12 C.F.R. § 1026.41
27
Internal Use Only
Documents
Periodic statements Payment history Note Closing Disclosure Communication logs
28
Internal Use Only
Review Disbursement of periodic statements Joint obligors Agreement / consent to receive electronically Demonstrated ability to access online
29
Internal Use Only
Review
Timing of statement Within 4 days Reasonably prompt
30
Internal Use Only
Review Content of periodic statements Certain items required Grouped together in close proximity to each other
31
Internal Use Only
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
32
Internal Use Only
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
Amount Due
33
Internal Use Only
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
34
Internal Use Only
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
35
Internal Use Only
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
36
Internal Use Only
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
37
Internal Use Only
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)
38
Internal Use Only
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
39
Internal Use Only
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
40
Internal Use Only
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
41
Internal Use Only
Periodic Statement Exercise
42
Internal Use Only
Mortgage Insurance
43
Internal Use Only
Rules & Regulations 12 U.S.C. § 4902 Termination of Private Mortgage Insurance 12 U.S.C. § 4903 Disclosure Requirements
44
Internal Use Only
Documents Annual disclosure notice Borrower requests for cancellation Communication logs Payment history
45
Internal Use Only
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
46
Internal Use Only
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
47
Internal Use Only
Mortgage Interest Statement
48
Internal Use Only
Rules & Regulations 26 C.F.R. § 1.6050H-2 State rules & regulations
49
Internal Use Only
Documents
Year-end statement Payment history
50
Internal Use Only
Review
Statement • Timing • Content
51
Internal Use Only
Interest Rate Adjustments
52
Internal Use Only
Rules & Regulations 12 C.F.R. § 1026.20
53
Internal Use Only
Documents Note
ARM Notices Rate Index
54
Internal Use Only
Review
Rate parameters • Index, cap, floor, etc. Accuracy of rate change Timing of notification Contents of notification
55
Internal Use Only
ARM Notice Exercise
56
Internal Use Only
Payments
57
Internal Use Only
Rules & Regulations 12 C.F.R. § 1026.36
58
Internal Use Only
Documents
Payment History Communication logs
59
Internal Use Only
Review
Payment receipt dates Partial payment application Payment application dates Late fee pyramiding
60
Internal Use Only
Force-Placed Insurance
61
Internal Use Only
Rules & Regulations Regulation X (RESPA) 12 C.F.R. § 1024.37 – Force-Placed Insurance
62
Internal Use Only
Documents Notice of force-placed coverage Force-placed policy Notice of cancellation Escrow disbursement history
Escrow Statement Communication logs
63
Internal Use Only
Review
Timing of notices Contents of notice Verify cancellation Last known coverage Was account escrowed? Borrower responses/communication
64
Internal Use Only
Review Required Notices & Timing Initial written notice 45 days prior Reminder notice 15 days prior
65
Internal Use Only
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
66
Internal Use Only
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
67
Internal Use Only
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
68
Internal Use Only
Review
Verify cancellation
Within 15 days of receiving
Last known coverage Was account escrowed?
If yes, review escrow documents Borrower responses/communication
69
Internal Use Only
Force-Placed Insurance Exercise
70
Internal Use Only
Error Resolution & Request for Information
71
Internal Use Only
Rules & Regulations 12 C.F.R. § 1024.35 12 C.F.R. § 1024.36
72
Internal Use Only
Documents
Borrower correspondence Communication logs Acknowledgement notice Response
73
Internal Use Only
Review
Borrower request Response/acknowledgement Effect on remedies
74
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