Updates to RESPA Servicing Requirements
Compliance Insight: One of the great things about SCA is the range of issues we get to see, and the wealth of knowledge we get to tap into while working with dozens of clients on a monthly basis. Today, we'll share some important insight about the updates to RESPA serving requirements.
By Gregg Oberg:
2018 brought with it a host of long-anticipated effective dates for requirements imposed on the industry by Dodd-Frank and other acts in the wake of the 2008 recession. We saw new HMDA, another new HMDA (EGRRCPA), TRID 2.0, a new BSA Pillar, and numerous state law updates. It’s easy to understand how even avid readers of industry news may have missed a rule or two.
The 2016 Mortgage Servicing Rules (MSR), which became effective in April 2018, received little fanfare among industry commentators relative to the origination focused rules discussed above. But to be sure, the MSR will not be similarly overlooked by regulators.
What is MSR all about?
The core issue Congress attempted to address with passage of the MSR is the complexity, frustration, and vulnerability of borrowers to defaults during financially troubling times and/or upon inheriting property following the death of the borrower. Delinquency is followed by foreclosure relatively quickly in some states, and the chaos surrounding an unexpected death of the property owner easily can result in his heirs being unaware of, or unable to, make scheduled mortgage payments to fend off foreclosure.
Congress addressed the latter issue by vesting rights to information in individuals who, by right, take the borrower’s interest in the property. These individuals are called Successors in Interest (SII). With regard to SIIs, the MSR placed requirements on servicers to define and follow specific procedures—including documentation required—to assess and verify or reject a claim of SII right.
Who does MSR apply to?
While not abundantly clear from the text of RESPA Subpart C itself, the MSR application is actually limited in scope. MSR applies to “Mortgage Loans”, which are defined by RESPA to include “any federally related mortgage loan, but does not include open-end lines of credit (home equity plan).”
Further, the Specific Objectives outlined in the table below are only applicable to a Primary Residence.
What is Required?
Generally, there are two classes of objectives under the MSA: (1) General Objectives; and (2) Specific Objectives, both of which are defined under RESPA and contained in 12 C.F.R. 1024.38-41.
Each of these general objectives must be supported by “policies and procedures that are reasonably designed to achieve the objectives.” Detailed attention should be paid to the development of policies and training of front-end employees on such. A consumer facing loss may call any number of departments attempting to get information, and you need to be able to appropriately route that conversation in a reasonable amount of time.
General Objectives are applicable to all servicing relationships unless an institution-wide exemption is provided for in the MSR (small servicers, 501(c)(3), or Housing Finance Agency), as defined in TRID 1026.41(e).
The second class of objectives was developed largely to ensure borrowers are given ample opportunity to avoid foreclosure, and is directly responsive to anecdotal experience of borrowers in the post-2008 market. As stated before, foreclosure and loss of your home is clearly a traumatic event; which can be compounded when sickness and/or death of the resident results in a SII inheriting the property.
Under the MSR, servicers are required to orally notify the borrower no later than the 36thday of delinquency, in writing no later than the 45thday, and to assign a dedicated “account manager” or similar to the delinquent account at or before the written notice deadline.
As a practical matter, the individual should be assigned before the 45-day notice is issued, and the contact info provided to the borrower at the same time as the letter. Another frequently missed procedure relates to “backing up” that individual. What do you do when the borrower calls and Joe Servicer is on vacation? Better figure that out and document it; you MUST get back to that caller promptly. Finally, servicers are required to functionally exhaust all non-foreclosure options prior to initiating foreclosure proceedings.
Interested in the topic? Tweet me @GreggOberg. Looking forward to sharing more if people are interested.
Spillane Consulting Associates has served the residential mortgage lending business since 1991. We have specialized in mortgage banking consulting services and provided quality control reviews, risk management and process consulting and employee training to credit unions, community banks and non-depository institutions. We are a thought leader on the strategic growth of residential mortgage lending. You can learn more by visiting our website, or scheduling a meeting with me or one of my colleagues.
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