Bridging Servicer Needs and Balancing Borrower Dreams

In the intricate world of home financing, mortgage servicers play a pivotal role in maintaining the delicate balance between lenders and borrowers. Mortgage servicing is not just about managing payments—it's about safeguarding dreams and fostering trust in the journey of homeownership. And homeownership is not just about owning property; it's about creating a space where dreams and memories are built. For mortgage servicers, this responsibility is about facilitating the journey that helps families turn houses into homes. Servicing audits play a pivotal role in ensuring that both operational efficiencies and borrower expectations are meticulously aligned. By diligently examining each facet of servicing, servicers can meet their operational demands while aligning with the goals and expectations of borrowers. This harmony not only streamlines operations but also enhances satisfaction and compliance across the board.?

Servicers handle a wide array of responsibilities, from collecting monthly payments and managing escrow accounts, to addressing delinquencies and foreclosures. As servicers navigate these complex tasks, they must adhere to a myriad of federal and state regulations designed to protect both the financial system and the consumer. Juggling the variances between federal, agency, and state directives can cause confusion and potential violations. Compliance in mortgage servicing is not merely a legal requirement but a fundamental pillar that ensures transparency, fairness, and stability within the housing market. I know, I know, I’m preaching to the choir.

I’d like to share some of the commonly found exceptions from loan level reviews of servicers and subservicers. While this list is not exhaustive, the following items keep us all awake at night.?

1) Payment Management. One of the most critical aspects of mortgage servicing is ensuring payments are processed accurately and timely. Common issues include:

• Misapplication of Payments: Payments applied to the wrong account or misallocated between principal, interest, escrow, and fees.
• Failure to Apply Payments Promptly: Delays in applying payments can lead to unnecessary late fees and negative credit reporting.
• Late Fee Assessment Error: Incorrectly assessing or waiving late fees due to manual processing errors or system misconfigurations. For example, when the loan agreement allows for one maximum amount, say 5% in late fees, but the state the property resides in only allows a max fee of 4%. Another example is when the loan agreement states late fees of 5% of the PITI or 5% of just the P&I.

It’s important to ensure you or your subservicer are comparing the loan agreement verbiage to state directives and the mortgage servicing platform being used is set up to charge the lesser of the two amounts of the allowed payment structure.

2) Escrow Account Management. Managing funds for property taxes and insurance is a complex task that can create confusion for borrowers and servicers. Frequent findings include:

• Incorrect Escrow Analysis: Errors in calculating the required escrow amounts can result in either over-collection or under-collection, affecting borrowers' monthly payments.
• Untimely Payments of Taxes and Insurance: Failure to pay property taxes and insurance premiums on time on behalf of borrowers for escrowed mortgage accounts can lead to penalties and lapses in coverage.
• Escrow Shortages and Surpluses: Mismanagement of escrow accounts can create shortages or surpluses, leading to borrower frustration and potential regulatory issues.

Implementing controls such as automated escrow analysis tools and exception reporting, as well as conducting regular audits and reconciliations helps eliminate escrow errors. Other valuable controls include segregating duties where different employees handle escrow analyses, adjustments, and approvals to reduce the risk of errors and fraud.?

3) Delinquency and Default Management. Servicers generally attest that managing delinquent loans and defaults is the most challenging aspect of mortgage servicing. As such, common findings include:

• Improper Foreclosure Procedures: Non-compliance with state and federal foreclosure laws, such as failing to provide required notices or conducting improper foreclosures.
• Loss Mitigation Issues: Inefficiencies or errors in offering and processing loss mitigation options, like loan modifications, can lead to missed opportunities for borrowers to avoid foreclosure.
• Inaccurate Reporting of Delinquent Accounts: Incorrectly reporting delinquent accounts to credit bureaus can severely impact borrowers' credit scores and lead to regulatory penalties.

Controls such as a pre-foreclosure review on every loan that ensures adequate notices and opportunities for resolution occurred prior to a foreclosure referral are good places to start. Third-party verification and compliance checks are also useful tools to assist in the management of loans in default.?

4) Proper Record Retention and Access to Servicing Documents. This is one that all servicers across the board seem to struggle with to properly service a mortgage loan.

• Missing or inaccurately named origination or servicing documents: Whether it be due to an error in the ingestion process of documents at the time of new loan boarding or during a servicing transfer, missing documents can lead to regulatory violations throughout the life of the loan.

Additional controls should be implemented during the new loan boarding process including time frames for delivery of missing documents and a robust escalation process. The process should support and reflect accountability and ownership for the servicer’s efforts to obtain missing critical documents and/or data points. Tracking of missing documentation and data should reflect a standard number of collection attempts and define how those attempts are made. Roles for escalation and how to escalate collection attempts should be well-defined. For example, a hierarchy of escalating collection attempts of missing documents via email and then phone, with escalation from the account representative to the supervisor and subsequently a VP or senior manager. Another consideration is including the process for collecting missing documentation in the transfer agreement, defining any recourse that may be taken for missing critical information. (i.e., denying the loan transfer/repurchase).?

The importance of compliance cannot be overstated. Regulatory frameworks such as the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and the Fair Debt Collection Practices Act (FDCPA) provide critical guidelines that servicers must follow to maintain ethical standards and operational integrity. These regulations aim to prevent abuses, protect consumer rights, and promote a healthy and competitive mortgage market.

In this context, the role of a mortgage servicer extends beyond administrative functions. The servicer is the custodian of trust, responsible for managing one of the most significant financial commitments a person can make. Servicing is fundamentally about nurturing the dreams and aspirations of homeowners while upholding operational excellence. Through diligent servicing audits, servicers ensure that every aspect of the process supports both the efficiency of the operations and the fulfillment of borrower expectations. This dual focus on operational precision and customer satisfaction helps create a seamless experience that not only meets regulatory standards but also strengthens the trust and satisfaction of all parties involved. By continuously bridging the gap between servicer needs and borrower dreams, servicers contribute to transforming the experience of homeownership into a rewarding and memorable journey.

Julie McCurley is the Director of Servicing at MQMR. She has a combined 28 years of mortgage, credit union lending, quality control, and management experience. As a student of management, Julie is adept at building relationships, establishing trust with staff members, mediating differences, and motivating others into action. Before joining MQMR, Julie was the Director of Quality Control at Residential Credit Solutions, performing gap analysis to identify areas of significant risk, controls, and recommend cures in the servicing arena. Julie championed onshore and offshore servicing teams with a specialized focus on providing world-class service. She was also responsible for leading the quality and compliance training programs and developing and implementing quality practices focused on strategic planning and company initiatives.

For additional insight into Servicing Quality Control, follow Julie on LinkedIn for her monthly Jules Rules for Servicing Compliance tips and videos. For more information, please visit www.mqmresearch.com