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later. And from its recent enforcement actions against some of the country's largest financial institutions, it's apparent the CFPB will waste no time pursuing any violations. So, what can you do right now to prepare for the final rules and ready yourself for that first CFPB exam? A good place to start is making sure you have quality loan data and that your documentation process helps ensure you are not only complying with all state and federal laws, but also acting in the best interest of the consumer. That's what the CFPB will be looking for come exam time. More specifically, you should pay close attention to the time- and labor-intensive default management process. Perhaps the most difficult part of this process requires servicers to identify and assemble the numerous compliance documents and disclosures required by state and federal law when a loan enters default and before a foreclosure can begin. Next, servicers need to be able to reach troubled borrowers and their legal counsel with these documents to obtain the necessary review and signatures. On top of all of this, regulators also require servicers to provide proof of everything and that an audit trail of any communications with borrowers about to enter default is made available. Outsourcing such a complex process is one of the best ways to be more proactive from a compliance standpoint while achieving better operational efficiency. It will not only make the CFPB happy—provided you follow its vendor risk management rules—but it will allow you to also mitigate compliance risk in the most timeand cost-effective manner possible. It's clear that in today's tough economic environment servicers are already burdened with an overwhelming amount of loans in default or with the potential to soon be. But the CFPB won't take that as an excuse for not fully adhering to its rules and acting in the best interest of borrowers. By taking a close look at the loan data documentation process now, servicers can avoid fines, penalties, and the reputational damage that could very likely come with a CFPB enforcement action later. A veteran of the financial services industry, Art Tyszka has helped some of the nation's premier financial institutions implement compliance and risk management technology systems. He has spent more than 18 years in the industry. 52 C O M P L I A N C E RICHARD M. NIELSON MANAGING PARTNER Nielson & Sherry, PSC If you had to sum up the year ahead in mortgage default compliance, it would be, "More of the same, just much more of it." With the presidential election behind us, it is clear no major changes in course will come and massive regulatory requirements will be the norm. The path forward will involve detailing out and fully implementing the intent of the regulations and settlements, reacting to changes brought on by the reengineering of the GSEs, and finding a way to pay for the costs of compliance. The five largest servicers are subject to the Department of Justice (DOJ) national mortgage settlement. These big five will continue to implement the terms of the settlement through refinement of policies and procedures established to carry out settlement provisions. Internal compliance and audit departments at the big five will continue to staff up and refine procedures and expectations placed upon law firms. In turn, law firms will add additional review, audit, and quality control processes to comply with their requests. Changes to the GSE structure will continue throughout 2013 and force major policy and procedural changes at servicers and law firms. The retained attorney networks at both GSEs will phase out in 2013 in favor of a new law firm approval process. This re-tooling of attorney oversight will cause law firms to spend much of 2013 implementing new rules. All servicers, including the big five, will deal with implementation of national mortgage servicing standards as well as revisions to the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and other regulations. The new standards and regulations will require all servicers to make major adjustments in many of their practices. More formal consumer complaint processes will take shape. Increased documentation will be required at all levels. Law firms will be required to adjust practices to assist their clients in complying with these initiatives. Servicers and law firms will continue to struggle with the detail involved in implementing the 2011 amendments to the bankruptcy rules. Many law firms will have to address additional oversight requirements implicated by the enactment of rules related to "larger participants" in the field of collections. Undoubtedly, additional resources will continue to focus on fully implementing the changes required by the bankruptcy amend- ments and increased oversight of law firms by the Consumer Financial Protection Bureau. These items will continue the broad trend in courts and government of paying little mind to the question of whether borrowers complied with the terms of their contractual commitment to pay and instead focus almost exclusively on keeping borrowers in their homes with the added complexity, discretion, and delay inherent in that analysis. The increase in regulations and oversight will continue to place severe operational strains on servicers and law firms. Law firms will place greater pressure on clients to increase fees in order to pay for the additional staffing requirements put upon them, and servicers will struggle to find a way to pay the costs of compliance. Ironically, it is likely these increased strains will cause some law firms and servicers to exit the marketplace or merge, thereby creating larger entities that were often the focal point of perceived abuses in the industry. The year 2013 will, indeed, be the year of much more of the same. Richard M. Nielson sits on the Legal League 100's Advisory Board and is chairperson of its Compliance Committee. Nielson & Sherry, PSC, is a member of Fannie Mae's Retained Attorney Network and Freddie Mac's Designated Counsel Program for Kentucky. B O R R O W E R O U T R E A C H CHRIS CARLISLE MORTGAGE SOLUTIONS DIRECTOR Varolii Corporation When considering the state of borrower communications heading into 2013, don't ask: "What's new?" It might be better to ask: "What's the same?" According to TransUnion's report for the third quarter of 2012, national mortgage delinquency has only dropped 47 basis points in the past year, from 5.88 percent to 5.41 percent. This slow rate of improvement means we are likely stuck with nearly three times the historically "normal" number of past-due borrowers for the foreseeable future. Considering most mortgage servicers are not increasing their operating budget by 300 percent, the pressure is on to collect more with less. If this high level of past-due accounts is the new normal, how should mortgage servicers equip themselves to reach borrowers effectively? Avoid the bottom of the pile. | The mortgage is no longer automatically on the top of a borrower's bill pile—that spot is now more typically occupied by their credit cards or cell phone

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