An analysis of Mortgage Servicing QC Audits performed by TENA during the second calendar quarter of 2016 identified numerous audit issues that were repetitive in nature and trending upward in frequency. The most significant and common issues noted are outlined below.
- Audit Finding: Incorrect ARM parameters entered into the Loan Servicing System.
ARM parameters reflected in the Mortgage Loan Servicing System have frequently been found to be incorrect when compared to the provisions outlined on the Note. Obviously, whenever the adjustment parameters are incorrect, the ARM adjustment outcome will be adversely impacted. Elements of the ARM adjustment parameters that were often identified as being incorrect include:
- Maturity Date
- First Change Date
- Change Rate Interval
- Index
- Margin
- Rounding option
- Interest rate floor or ceiling
Prevention Strategy Recommendations:
- For each ARM loan entered in the servicing system, conduct a “spot audit” by comparing the ARM screens within the servicing system to the note. The cost in labor of this onboarding review will be negligible compared to the time and expense associated with the future remediation of an incorrect adjustment. This is particularly in those circumstances where more than one ARM adjustment was completed prior to identifying that one or more of the adjustment parameters was incorrect.
- To help identify whether your organization is at risk relative to the adjustment of ARM payments, periodically select a sample of seasoned ARM loans to confirm that the adjustment algorithm is utilizing the correct parameters.
- Audit Finding: The Notice of Servicing Transfer document is incomplete.
The Real Estate Settlement Procedures Act (RESPA), as outlined in 12 C.F.R. § 1024.33 requires the notice of transfer of loan servicing to include specific criteria which includes a statement of whether the transfer will affect the terms of the continued availability of any optional insurance, including life and disability insurance. In addition, the borrower must be advised of any action that must be taken to maintain such coverage. TENA’s second quarter analysis of QC findings revealed that many servicers failed to satisfy these specific provisions and that such incidents were being noted with increasing frequency.
To review the RESPA 2 C.F.R. § 1024.33(b)(4), click here.
- Audit Finding: Credit bureaus not updated properly following mortgage payoff.
The audit analysis reveals that after receiving a mortgage payoff, a significant number of TENA’s clients failed to consistently update credit bureau records in a timely manner as prescribed by the FCRA § 1681s-2(a)(4). To review the requirements of that statutory provision, click here.
- Audit Finding: The monthly statement provided to the mortgagor was incomplete.
The Truth in Lending Act (TILA) requires that a periodic statement must be sent to the mortgagor(s) on each qualified mortgage transaction. The analysis of TENA’s audit findings reveals that the periodic statements frequently are missing required data elements, the most common of which is the:
- Web site to access the Bureau list; or
- Web site to access HUD’s list of Homeownership counselors and counseling organizations; and
- The HUD toll-free telephone number to access contact information for homeownership counselors or counseling organizations.
Requirements regarding the periodic statement are defined within 12 C.F.R. § 1026.41. To review this statutory requirement, click here.
- Audit Finding: Inaccurate codes reported when updating HUD’s Single Family Default Monitoring System (SFDMS).
The Single Family Default Monitoring System (SFDMS) is HUD’s system for tracking mortgagee data on delinquent mortgages. Once a delinquent mortgage transaction is entered into SFDMS, the servicer must continuously update the system to reflect the status of the delinquent mortgage. That process continues until the delinquency is resolved as a result of reinstatement or termination.
During the period March – June 2016, TENA noted an increased frequency of Servicers reporting incorrect codes for activities that impacted the delinquency event. The most notable audit finding was the incorrect use of Default Reason Code 31 “Unable to Contact Borrower”. The audit analysis demonstrated that this code was frequently utilized even when there was evidence that the servicer had been in contact with the borrower(s). Default Reason Code 31 should be used in conjunction with 30 and 60 day delinquencies (and on rare occasion, with a 90 day or more delinquency) only when the borrower cannot be located or has not responded to the servicer’s inquiries.
This guideline is addressed in FHA SFHPH 4000.1 – III.A.2.h(xiii)(A). To review this regulatory requirement, click here.
