How should servicers navigate loss mitigation & CFPB requirements

How can servicers manage loss mitigation while complying to CFPB requirements

Murali Tirupati

Cofounder & CEO, Vaultedge

The breakout sessions and panel discussions at MBA Annual 21 provided some brilliant insights into the critical areas for lenders and servicers in 2022. 

Taking a leaf out of these panel discussions, we are running a series of posts that summarize these insights.

Last week we discussed how automation and omnichannel experience can help lenders drive top-line growth in a purchase market.

This week’s focus will be on how mortgage servicers can navigate the various loss mitigation options for borrowers coming out of forbearance while complete compliance with CFPB regulations.

Understanding upcoming priorities for CFPB:

With the appointment of new CFPB director there could stricter implementation of consumer protection & loss mitigation guidelines.This could mean enforcement of public consent orders, increased penalties for violation of RESPA, TILA, UDAAP etc.

Since earlier this year, CFPB has been releasing guideline bulletins to ensure servicers are vigilant in handling borrower data, payment restructuring applications, MSR transfers etc. For example - in April, CFPB released a bulletin that warned mortgage servicers to take all necessary steps now to prevent “a wave of avoidable foreclosures in the fall” - when borrowers exiting COVID-19 moratoriums and forbearance plans begin to request loss mitigation options.

In addition to these, the upcoming priorities of CFPB would be to ensure increased oversight on:

  • Unfair practices in debt collection & credit reporting inaccuracies.
  • How technology impacts compliance with consumer financial laws.
  • Oversight on how servicers are communicating & engaging with consumers.

In the last few months, CFPB has shown an up-tick in hiring of examiners - hence servicers can expect a surge in requests for information and disclosures. Thus we could expect stricter implementation of consumer reporting and protection regulations which can add overburden to servicing operations.

How can servicers navigate CFPB regulatory challenges:

Servicers should mine consumer complaints to identify compliance weaknesses and systemic risks. This will help servicers stay ahead of the curve as CFPB has a dedicated team to routinely review customer complaints. 

While integrating new technology stack, servicers should be mindful of handling borrower data carefully to avoid discrepancies in loan files. Unintended errors made during a manual onboarding process could result in improper application of mortgage payments, incorrect borrower contact details, delayed interest rate adjustments etc. This could result in conflict with CFPB compliance guidelines.

Hence, servicers should adopt an automation first strategy to standardize document and data transfer at scale. This would reduce errors due to human intervention while ensuring all digital reports and disclosures are in compliance with consumer financial laws.

Customer communication approach during loss mitigation:

As Jason Kwasny from The Money Source would put it - 

“Start with customer experience and work backwards.” 

In other words - servicers should plan for an effective communication strategy to help customers during the loss mitigation phase. While this may vary across companies - some of the basic principles remain same:

  • Unambiguous communication: Use clear communication without industry jargons to convey a message to consumers. Talk to the consumers in the language they understand.
  • Improve accessibility: Make helpful resources (like guides & explainer videos) easily available & accessible. Wherever necessary make information available on a self-serve basis through chat-bots, website resource section, email communications etc. 
  • Accuracy: All form of communications need to be accurate and consistent. This is particularly important for customer support teams. Service agents need to be trained ahead of time and to be provisioned with necessary information so that they can share the exact information with the customer.
  • Proactive engagement: Servicers need to periodically share helpful information on their own with the consumer.

This is important because a consumer centric focus will help not only improve retention but also minimizing regulatory compliance risks.

Wrap Up

From the servicer focused break-out sessions at MBA Annual 21, we understood that navigating post-forbearance loss mitigation is a complex subject.

The above write up just touches some of the immediate priorities for servicers & how they can deal with these.

For a more nuanced understanding you can refer to some of the articles here and here.