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» VISIT US ONLINE @ DSNEWS.COM 65 there is still a significant amount of compliance required. It also remains to be seen how quickly the new administration will be able to implement changes to the federal regulatory structure. So, while 2018 and beyond may look very different for servicers, at least part of the next year will bring more scrutiny and more fines, even as the incoming leaders begin to chip away at the system created by Dodd-Frank. Don't expect total deregulation, in other words. Expect a phased relaxation of federal regulations beginning in 2017. SERVICING JOE PENSABENE President & CEO, Selene Finance For years, our industry has felt the reverberation of the mortgage crisis and economic downturn and 2017 will not be without its chal- lenges. e servicing sector, in particular, continues to navigate an ever-changing environment of regulatory scrutiny, shifting participants, and rate sensitivity. With the election behind us, it appears there may be an effort by the new administration to repeal financial regulations imposed under Dodd-Frank. Whether this will rise to the top of an ambitious agenda in 2017 is yet to be seen but would clearly affect the landscape. Servicing costs have risen exponentially over the last several years as a result of regula- tory changes. is ongoing scrutiny requires servicers to bolster processes, quality control and customer-facing practices to remain compliant. While some of these changes have improved operations, the cost has been crippling and ser- vicing income has not increased to offset these expenses–notably, GSEs still pay the same rates. In response to this, we've seen many servicers decrease capacity or drop out of servicing alto- gether. We can expect to see this trend continue in 2017. is shifting creates a lack of competent capacity, and specifically a lack of capacity at servicers with experience handling borrowers in distress. A spike in rates or a drop in the econo- my would have a heavy impact on the capacity at servicers with FHA/VA experience. It's also worth noting that there is a general perception that rising defaults are behind us, but with many HAMP and other modifica- tion programs starting to season (some with step rates) a slight move in interest rates could cause another spike. Currently, there isn't much incentive for large originators to enhance special servicing capabilities, either in-house or through a partner. To them, even those with a compliant and efficient operation, a delinquent borrower represents too great a risk to their bottom line and brand. Should any large, nonbank servicers fail this problem becomes even greater. Banks and the GSEs have made progress on moving NPLs to specialty servicers capable of leaving no stone unturned and offering every creative solution available to borrowers. As this volume has crested, a larger RPL universe is being created and this positive momentum is put forth to help keep those borrowers remain cur- rent and permanently re-enter the performing loan space. As such, 2017 will be a market dom- inated by surviving servicers adept at providing creative solutions to borrowers in a compliant fashion, ready for the challenges ahead. COMPLIANCE JESSE TAYLOR Client Solutions, Treliant Solutions Fair lending compliance has been a hot topic and a focal point for financial institutions and industry regulators for some time. But 2017 will usher in a new level of scrutiny and those lenders that do not prioritize this key component of their compliance programs will find themselves facing dire consequences. Lenders are fearful of becoming the next headline. Enforcement actions to date have demonstrated the consequences of non-com- pliance, but have provided limited insight into regulators' continually evolving methods for evaluating what is actually fair. e emphasis on fair business practices is also being applied across new perspectives. Compliance is no longer only about whether institutions are lending fairly, but are they servicing fairly? Marketing fairly? Addressing complaints fairly? e industry has been warned by regulators to "know your data" and must continue developing methods for internal analysis and ongoing monitoring to be fully armed against reproach. But looming in the distance is another com- pliance behemoth: the new Home Mortgage Disclosure Act (HMDA) rule. On January 1, 2018, several major components of this updated regulation will go into effect, and they will shape the next year for any institution concerned with fair lending. ose who take comfort in this seemingly distant effective date and postpone critical implementation milestones will find themselves in a year-end whirlwind, desper- ately scrambling to foster the cross-department collaboration necessary for success. While many lenders have heeded the industry's warnings to start early, those that have succumbed to inertia will find their implementation process signifi- cantly more complex than anticipated. ird-party providers will bear a heavy portion of this latest fair lending offensive. ey will of course be responsible for creating the mechanisms necessary to capture the newly re- quired information. e speed with which they offer the new and modified fields will determine how quickly institutions can begin testing that EXPERT OPINION "It's also worth noting that there is a general perception that rising defaults are behind us, but with many HAMP and other modification programs starting to season (some with step rates) a slight move in interest rates could cause another spike." –JOE PENSABENE EXPERT OPINION "Third-party providers will bear a heavy portion of this latest fair lending offensive. They will of course be responsible for creating the mechanisms necessary to capture the newly required information." –JESSE TAYLOR

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