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poor servicing practices, yet they must mount major lawsuits to look inside the servicers they depend on for this aspect of the business. The whole loan investor faces similar liabilities and the potential of reputational risk for poor servicing practices. But servicers may face the greatest risk of all. Penalties from regulators can be dramatic. Enforcement actions for compliance violations can be severe. Reputational risk is extreme in this new world. The servicer must find a way to mitigate risks to protect itself, borrowers, and investors, all at a time when growth is dicey, margins are slim, and performance expectations are high. Be Calm and Carry On The mortgage servicing industry faces seemingly insurmountable pressures of the unknown. Servicers share a collective (and arguably justifiable) fear of regulations that haven't been published or thought through but are nevertheless vigorously enforced. Stories abound of servicers caught unprepared and dealt huge penalties. And looming forebodingly on the horizon? January's implementation date for the Consumer Financial Protection Bureau's (CFPB) new servicing standards. What can a servicer do right now with resource limitations, capacity constraints, an unsteady market, and regulators looking over their shoulders as never before? When faced with a problem that seems overwhelming, the first step is to respond in a measured way with the resolve to continue. One management approach that has been tried and tested over and over with successful outcomes seems simple. Business leaders can approach the situation facing their company from the safe distance of a business school case study. This perspective provides the objectivity and clarity that can lead to surviving—and thriving—through turbulent times. Business School Case Study Approach Servicers must start by understanding what regulations apply. The set of rules and regulations is not perfect, and it changes constantly, but servicers can build upon the following list, which includes the promulgations of a variety of regulatory bodies: The CFPB published the nine areas it will focus on in its mortgage servicing examinations. The attorneys general/Department of Justice settlement provided a very granular list of acceptable servicing practices. The Office of the Comptroller of the Currency (OCC) issues bulletins with some frequency. States publish their own individual rules and guidelines. For each area subject to audit or review, each servicer should define the quality standard the company must attain and then test to see what needs shoring up and what's working. Every area of exposure needs testing. Servicers can't assume something works based on published policy or even based on someone's statement about how they do something. Testing actual loans and then retesting periodically is absolutely essential to knowing what's truly in place. The next step is prioritizing actions and remediation efforts based on the biggest gaps discovered and the greatest risks. If a state notifies a servicer that it will audit in the short term, then place that state's guidelines ahead of others for review and assessment. Similarly, barring a pending state audit, prioritize based on geographic loan concentration. Servicing fees is one area every servicer should include in its risk review. Building or subscribing to a database of allowable fees, under the guidelines of the various entities such as regulators and the GSEs, is critical to any servicer's ability to monitor its own performance in an area that is high risk and high exposure. Department of Ju stice~ Office FOR IMMED IAT E RELEASE of Public Affairs Federal Governm ent and State Attor Billion Agreem neys Thursday, Februa ry 9, 2012 Genera ent w Mortgage Loan Seith Five Largest Mortgage Servic l Reach $25 ers to Address rvicing and F Agreement Provid es Homeowner R oreclosure Abuses ~ $25 Billion elief & New Prote ctions, Stops Abuse s Board of G ov er nor s of t he Feder al R elea se Dat e: Apr il 13 R COMPLIANCE MANDATES Agencies and Other Entities: » » » » State Attorneys General Settlements State Examinations GSEs, Private Investor Oversight Consumer Financial Protection Bureau (CFPB) CFPB Enforcement of Federal Consumer Financial Law (current) » Unfair, Deceptive or Abusive Acts and Practices (UDAAP) » Equal Credit Opportunity Act (ECOA) » Home Mortgage Disclosure Act (HMDA) » Truth in Lending Act (TILA) » Real Estate Settlement Procedures Act (RESPA) » Homeowners Protection Act (HPA) » Consumer Leasing Act (CLA) » Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act » Fair Credit Reporting Act (FCRA) » Fair Debt Collection Practices Act (FDCPA) » Electronic Fund Transfer Act (EFTA) » Truth in Savings Act (TISA) » Privacy of Consumer Financial Information (GLBA) CFPB Servicing Rule Changes under RESPA and TILA (effective January 10, 2014) » Periodic Billing Statements » Interest-Rate Adjustment Notices for ARMs » Prompt Payment Crediting and Payoff Statements » Force-Placed Insurance » Error Resolution and Information Requests » General Servicing Policies, Procedures, and Requirements » Early Intervention with Delinquent Borrowers » Continuity of Contact with Delinquent Borrowers » Loss Mitigation Procedures Office of the Comptroller of the Currency Amendments to Consent Orders Memorialize $9.3 Billion Foreclosure Agreement WASHINGTON — The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board today released amendments to their enforcement actions against 13 mortgage servicers for deficient practices in mortgage loan servicing and in foreclosure processing. The amendments require the servicers to provide $9.3 billion payments and other assistance to borrowers. The Feder al R eserve Bo , 2011 ~ For ar d on Wed ba nking org immediate nesday ann aniz ations release ounced fo to address pr actices in r m al enforc a patter n o residential ement acti f miscondu mortgage lo epresent si ons requir ct and neg gnificant an servicin ing 10 ligence rela and pervas g and fore ted to defic ive complia closure pr ient nce failu ocessin 90 eserve Syste m

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