Ellen Rose is a Managing Director with Treliant. She is a seasoned financial services professional with executive experience in all facets of commercial and residential mortgage banking. Ellen has over 35 years of industry experience in directing originations, secondary marketing, servicing, support, and vendor activities. With a focus on compliance,…
“I want to run, I want to hide.” These opening lines to a 1980s rock anthem aptly describe how mortgage loan servicers feel when data issues disrupt the transfer of newly acquired servicing rights.
Time and time again, servicers struggle with a range of data transfer errors between the seller (transferor) and buyer (transferee) of servicing rights. For example, the data might not have transferred cleanly enough for the transferee to easily notice that a borrower is in the midst of a loss mitigation application (also known as an “in-flight” application). Or, a borrower’s previous loss mitigation history might have gone missing. And the list goes on.
The data transfer problem has been so prevalent that the Bureau of Consumer Financial Protection (the Bureau) stated clearly, in its final rule on mortgage servicing, that “failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer” is punishable by law.1
This article will discuss industry best practices for the sale and/or acquisition of mortgage servicing rights that include loans in default or undergoing loss mitigation.
The Importance of Data Mapping
The importance of data mapping—meaning that each field in an acquired portfolio is matched with a data field in the transferor’s system—cannot be understated. Both the buyer and seller of the portfolio share the responsibility to meet the Bureau’s expectations for clean data transfers, which starts with ensuring that all fields are mapped from the seller’s system to the buyer’s.
When a servicing portfolio is reviewed prior to purchase, the priority is to ascertain the portfolio’s credit risk. However, equal attention should be given to ensuring that the system receiving the data is ready for the influx of documents and data points. It is also critical that employees be prepared for all the new data.
Practically speaking, the data received from the transferor is the only source of information the transferee has. If a large swath of a borrower’s history was not received or is unusable by the transferee, then both the buyer and seller open themselves up to scrutiny from regulators.
The Bureau specifically brought attention to this matter with respect to acquired loans that are in loss mitigation. The Bureau stated that three categories of items must be included in any transfer: information reflecting the status of discussions with the borrower, agreements made with the borrower, and analysis of any potential recovery from the mortgage.2
Data May be Unusable
It should be noted that unusable data is as problematic as missing data. Often, transferees find themselves with an abundance of data—which should be a good thing, but is actually useless without a process to identify how that data fits into the system(s) used to execute day-to-day activities on loans.
Every code, field, or entry from the transferor’s system should align with those that the transferee’s employees use. This allows for smooth integration of data and for borrower-facing employees to easily read files. If conversion constraints prevent data transfer, records should be made available to transferee personnel to properly service loans following the transfer.
Once all data has been collected and adjusted to the transferee’s system, the job is then to ensure that new borrowers pick up exactly where they left off with their prior servicer. When a borrower calls asking about his or her in-flight loss mitigation application, it is bad practice for employees to request data that the borrower has already provided. This is considered burdensome to the borrower and has generally been on the Bureau’s radar.
Employees should receive training regarding loans that have been transferred in from another servicer. A key responsibility of transferees’ employees should be to investigate the borrower’s loss mitigation history. Each loan file tells a story, and employees need to read every chapter of that story when working with borrowers coming in from a previous servicer. Failure to provide seamless continuity in loss mitigation results in increased regulatory as well as financial risk.
Notes Tell the Loan Story
The crux of the story will often be found in notes from the previous servicer. Transcriptions of phone calls, notes on payment history, correspondence between the borrower and the servicer—all of this contributes significantly to the story of the loan. During a data transfer, the notes will arguably be among the most difficult details for employees to reconcile. While industry-standard phrases and abbreviations will be picked up easily, other internal phraseology will almost certainly be lost on employees of the acquirer.
Since notes and correspondence are such a critical part of the story of the loan, the acquirer should make every effort to prepare them during the data transfer process. Equally important is the documentation provided from any previous servicer. Documents sent or received concerning in-flight loss mitigation applications can potentially be rich in information that will benefit the consumer. All documents need to be transferred, along with raw data, notes, and correspondence. To be unprepared for the influx of this data is to miss out on a treasure trove of information that benefits the borrower, the seller, and the buyer.
Once the story has been read and the loss mitigation application continues, communication is the next most important requirement. It benefits transferees to communicate their exact knowledge of their borrowers’ situations. By outlining the records they have with respect to an in-flight loss mitigation application, the new servicer shows that it cares for borrowers and is proactive in assisting them during difficult times.
Showing a proactive approach to borrower assistance is crucial in loss mitigation. Specifically, the Bureau has placed heightened attention on servicers’ interactions with borrowers of limited English proficiency. Ensuring that the acquirer’s employees are aware of their new borrowers’ language requirements is critical—not just for customer service, but to ensure borrowers are receiving information required by law in an understandable manner.
When Applications Are Denied
In the event that a loss mitigation option could not be worked out, the reasons for denial should be explicit. This holds true for all loans, but especially for transfers. If the wording of the denial is not explicit, an uninformed borrower could easily misinterpret a denial reason. For example, “You have been denied because your loan has been previously modified” could be misconstrued as “You have been denied because your previous servicer provided loss mitigation.”
The wording of denial reasons should not leave any room for interpretation or be ambiguous, especially considering the Bureau’s new mortgage servicing rules. Servicers need to explain to borrowers that, under the new Bureau rule, they are only eligible for multiple permanent modifications if the previous modification led to the borrower catching up, only to default again. Most borrowers do not know the complexities of loss mitigation, so it is the job of servicers not only to know them, but also to ensure that their borrowers are aware of their options.
In short, receiving data is one thing; using it and acting upon it is completely different. It is crucial to transferees and their new borrowers that data transfers go smoothly, and that all acquired loans are given an extra look for pertinent information related to all servicing activities including, and maybe foremost, loss mitigation activities.
1 See Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Rules, Section 9.5, Page 109
2 Ibid, Section 10.4.4, Page 130