DS News

70 I N D U S T R Y I N S I G H T / M I C H A E L O ' C O N N E L L Our industry learned a great many lessons in 2007 and the years that followed. When the financial crash sent one out of every 10 homeowners into default, the foreclosure industry was forced to deal with a workload it had never anticipated. Overnight, the industry was flooded with loans in default. To the shock of many, the collateral paperwork that was supposed to protect investors from borrower default was often discovered to be in complete disarray. Servicers expected to find complete sets of loan documentation in the pallet loads of paper files they received from the nation's document custodians. Of course, that's all too often not what they found. e work that companies were called upon to do was nothing short of a massive cleanup campaign that took years to sort out. Fortunately, it's been a decade since the financial crash and this is one thing we no longer have to worry about, right? Actually, no. In the post-crash rush to pass laws and create rules designed to improve the industry, the operations surrounding management of collateral files went largely untouched. After all, the mortgage, title policy, modifications, and assignment documents rarely impact the consumer in any meaningful way, so they fly somewhat under the radar. Even the ratings agencies care more about the documentation related to the borrower credit underwriting than the collateral file. e result is that our industry is still subject to substantial risk. It's a serious problem that cries out for a better solution. e management and control over an exception-free collateral file has an impact on all aspects of the life of the loan, whether it is for default, MSR transfers, whole-loan sales, securitizations, or even when the loan is paid off. ORIGIN STORY e process of manufacturing a mortgage loan is complex, with many moving parts and documents produced as the deal moves down a partially automated track from application to close. After the close, a great deal of work still remains, with trailing documentation arriving sometimes long after the deal has been boarded onto the servicing platform. Typically, a document custodian will hold these files and keep them safe until such time as they are required, either for a transfer of servicing rights, whole-loan sale, a payoff, or all too often, by the default servicer. Custodians have historically done a reasonable job of keeping the information and documents secure In the post-crash rush to create rules designed to improve the industry, the operations surrounding management of collateral files went largely untouched. Now, it's time to tighten procedures to ensure documents are secure.

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