The Consumer Financial Protection Bureau (CFPB) released a special edition of its supervision report, honing in on mortgage servicers on June 22nd [1]. It blamed outdated technology and process breakdown for trends it has seen with violations of the CFPB's 2014 servicing rules. The primary areas of concern are communications and data related to loan modifications and servicing transfers.
Among the highlights of the report, CFPB examiners found that "information about loan modifications is late, incorrect, or deceptive, due to technological breakdowns or malfunctions". Examiners cited issues with the processing platform, which created delays in acknowledgment notices, loss mitigation offer letters, and trial modification conversion, causing harm to the borrowers. They further found that there were breakdowns during loan boarding upon a servicing transfer. Examiners found that the new servicers may not have had compatible platforms, resulting in incomplete documents, and the new servicers failing to identify and honor modification agreements already in place.
Notably, one issue brought up was that delays in honoring "in-flight" modifications were caused by the line of business' dependence on the IT department to manually override data fields when the servicing platform rejected transferor data. The CFPB proposed that the servicer grant override authority to loss mitigation staff so as to reduce the time required to honor modifications. This is a suggestion fraught with latent consequences. There is a huge risk to data integrity created by opening up access to locked fields. Unlocking fields would put important loan data at the mercy of human error and expose the servicer and consumer to losses. A better solution would be to implement streamlined IT request procedures or grant limited access to supervisory staff with strong operational and quality controls in place before and after the data is changed to ensure accuracy.
Now is the time for servicers to work together to develop and implement flexible, updated, technology that can pair with other systems and grow with the industry. It will benefit both servicers and consumers long term, as the cost of the full time employees needed to conduct enhanced quality control reviews of non-automated processes will only grow. Voices in the industry promote increased "optics", "metrics", and "data driven decision making". Those words sound great in a white paper, but a servicer's true vision, performance, and decisions are only as good as the foundation of data on which they are built.
[1] The Bureau concurrently released an updated mortgage servicing exam manual reflecting enhanced review of complaint handling and fair lending laws.