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INDUSTRY INSIGHT EXECUTING EXCELLENCE In today's highly scrutinized servicing sector, a robust quality control plan is essential—and expected. By Michael Forester Several years ago, no one was talking about servicing quality control. More recently, in the wake of "robo-signing" and the resultant servicer consent orders from regulators, servicing quality control has become a point of emphasis for the GSEs and private investors, and they've implemented new and enhanced requirements to underscore its importance. With the spotlight on servicing quality, it is critical that servicers of every size maintain a strong quality control process. This process should involve the development of a solid quality control plan, sound execution of the plan, loss mitigation and foreclosure process reviews, and useful reporting with findings reviewed by senior management. Compliance Requirements Fannie Mae and Freddie Mac make it clear in their servicing guides that a servicing quality control process is compulsory. However, the guides provide little detail regarding specific requirements, such as the areas of servicing that should be covered, sample sizes, and reporting obligations. On the other hand, the Federal Housing Administration (FHA) has detailed more specific servicing quality control requirements in its FHA Title II Mortgagee Approval Handbook. Chapter 7, Part C of the agency's handbook describes the areas to be reviewed, frequency, and sample size requirements. While some FHA requirements are not applicable to conventional loans, a look at these requirements can provide 56 a starting point for any servicer's quality control program. On April 13, 2011, federal regulators entered into consent orders with 14 of the largest mortgage servicers. Terms of the orders included requirements to: » Improve communications with borrowers by providing them the name of the person at the servicer who is their primary point of contact. » Ensure that foreclosures are not pursued once a mortgage has been approved for modification. » Establish controls and oversight over the activities of third-party vendors that provide to the servicers various residential mortgage loan servicing, loss mitigation, or foreclosurerelated support, including local counsel in foreclosure or bankruptcy proceedings. » Provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process. » Strengthen programs to ensure compliance with state and federal laws regarding servicing and foreclosures. While the servicing consent orders are specific to 14 servicers, the requirements described in those orders have become informal servicing standards that regulators are looking to see in place for all servicers. The Consumer Financial Protection Bureau (CFPB) has also focused on mortgage servicing. The CFPB Supervision and Examination Manual devotes 31 pages to mortgage servicing. The manual points out that mortgage servicers are subject to portions of the Real Estate Settlement Procedures Act (RESPA), Truth in Lending Act (TILA), Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), Gramm-Leach-Bliley Act (GLBA), and Equal Credit Opportunity Act (ECOA), among others. The manual goes on to point out that "the examination process also will include assessing other risks to consumers that are not governed by specific statutory or regulatory provisions. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs) with respect to servicers' interactions with consumers." Building on the issues raised in regulators' consent orders, the CFPB in January 2013 issued its mortgage servicing rules, which become effective in January 2014. These rules include requirements covering: » Periodic statements » Interest rate adjustment notices » Prompt payment crediting » Force-placed insurance » Error resolution » Policies and procedures, specifically addressing timely and accurate information, proper loss mitigation, oversight of service providers, information transmissions during service transfers, the processing of information requests, and error notifications » Early intervention for delinquent borrowers » Continuity of contact » Loss mitigation procedures