Mortgage Servicing Quality Control

Notable Audit Findings:  January – March 2018

1. Audit Finding: The subject property was located in a FEMA disaster area but there is no evidence that the servicer provided the borrower with a 90 day moratorium on foreclosure. 

Nearly every Agency and Investor requires a moratorium of at least 90 days on the initiation of foreclosure when the subject property is located in a Presidentially-Declared Disaster Area. In the first quarter of 2018, a significant increase in audit exceptions were cited because foreclosure actions had been prematurely initiated on properties that were located in a Presidentially-Declared Natural Disaster Area.

TENA Recommendation: Consider testing your firm’s compliance by sampling a population of loans that have zip codes associated with Presidentially-Declared Natural Disaster Areas and that are currently in active foreclosure.For guidelines regarding this matter, consult:

• FHLB MPF Government MBS Servicing Guide
• FHLB MPF Traditional Servicing Guide
• VA Servicer Handbook M26-4: 21.03, a
• FHLMC Single-Family Seller/Servicer Guide, 8404.4(a), (b)
• FHA SFHPH 4000.1 – III.A.3.c.(ii)(A)
• FNMA Servicing Guide D1-3-01
• RHS 7 C.F.R. § 3555.307(c)
• RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook 18.11

2. Audit Finding: Upon contacting a borrower after a disaster, the servicer did not document that it made any effort to determine the effect the disaster had on the borrower’s ability to continue making the required monthly payments.

When a property securing a mortgage loan is impacted by a disaster, nearly all agencies require that during the servicer’s first post-disaster contact with the borrower(s), a determination (and documentation thereof) be made regarding the borrower’s ability to make future loan payments and/or the ability to make payment in full on the mortgage loan. Such information is necessary to enable the servicer to accurately determine the forms of relief that can and should be offered to the borrower.During the first quarter of 2018, TENA reviewed many loan transactions secured by properties that had been impacted by a natural disaster. The analytics of those audits revealed an increasing trend wherein no documented evidence was found that the servicer had attempted to determine the borrower’s post-disaster payment capacity.

2. TENA Recommendation:  Review and, if necessary, update your firm’s Policies and Procedures for handling situations where a serviced property has been impacted by a natural disaster. To ensure compliance, consider performing a targeted quality control review on properties impacted by disasters to determine whether the servicing procedures utilized at the time were compliant with the applicable disaster guidelines.For references regarding compliance with this matter, review these publications:
3. • FHA SFHPH 4000.1 – III.A.3.c.(iv)
   • FHLMC Single-Family Seller/Servicer Guide, 8404.4
   • RHS HB-1-3555 SFH Guaranteed Loan Program Technical Handbook 18.10
   • FNMA Servicing Guide D1-3-01

3. Audit Finding: A debt collector, working on behalf of the mortgage loan servicer, caused a telephone to repeatedly ring and/or initiated telephone contact repeatedly or continuously with a person (or persons), in a manner that could appear to be with intent to annoy, abuse, or harass an individual or individuals at the called number.

TENA’s review of customer service and collection call logs during the subject period revealed numerous occasions where the representative of the loan servicer engaged in attempts to contact a borrower in what appeared to be: a) an excessive number of attempts in a given day; and/or b) with an intent to annoy, abuse, or harass the borrower.

The following requirements are extracted from Fair Debt Collection Practices Act: 1692d: Harassment or abuse (01/03/07)

A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of the debt.  Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1) The use or threat of use of violence or other criminal means to harm the physical person, reputation or property of any person.

(2) The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.

(3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirement of section 1681a(f) or 1681b(3) of this title.

(4) The advertisement for sale of any debt to coerce payment of the debt.

(5) Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.

(6) Except as provided in section 1692b of this title, the placement of telephone calls without meaningful disclosure of the caller’s identity.

TENA Recommendation: Review that your firm has adopted, promulgated, trained, and when necessary, re-trained, all customer contact persons regarding: a) the firm’s responsibilities under the Fair Debt Collection Practices Act and, b) the borrower’s rights under that Act. To evaluate your firm’s propensity for possible violations of the Fair Debt Collection Practices Act, consider utilizing a targeted review by selecting delinquent loan transactions that are in various stages of the debt collection and/or loss mitigation processes. Make certain that a periodic review is performed on a representative sample of the customer contact work performed by all individuals who have responsibilities relating to debt collection and loss mitigation matters.

For additional information regarding this matter, review: FDCPA 15 U.S.C § 1692d(5).

4. Audit Finding:  Parts B through E of Form HUD-27011 were not uploaded to P260 within: a) 45 days of the date the deed was filed for record (or mailed to the recording authority); and/or b) within 15 calendar days after the date of the title approval letter.

TENA’s Claims Submission reviews revealed a number of related findings associated with FHA insured loans that involved the late uploading to P260 of parts B through E of Form HUD-2701. The audit metrics indicate that parts B-E were frequently uploaded to P260 significantly after the 45 day period of time allotted for completion of the action. In multiple instances, it was also noted that, in addition to exceeding the 45 day upload requirements, the servicer also exceeded the requirement for uploading parts B-E within 15 days after the Title Approval Date in FHAC (for electronic filings) or 15 days after the Title Approval Letter Date (if the claim was filed manually).

Specific to FHA loans, the agency’s HUD Single Family Housing Policy Handbook 4000.1 states:

(2) To P260: 

The Mortgagee must upload into P260:

• Parts B, C, D, and E; and

• required supporting documentation of amounts claimed.

The Mortgagee must upload into P260 Parts B, C, D, and E within the later of:

 • 45 Days after the deed was filed for record or mailed to the recording authority; or

 • 15 Days after the Title Approval Date in FHAC, if the claim was filed electronically (or 15 Days after the Title Approval Letter Date if the claim was filed manually).

TENA Recommendation:  It is important to periodically review a firm’s written policies for handling FHA claim submissions to ensure that: a) the policies are up to date; b) that they are well documented and effectively communicated to staff; and, c) that they are being consistently adhered to. A targeted random sample of claim submissions can be used to evaluate the execution of a firm’s policies as they relate to the FHA claims submission requirements.

To review compliance requirements, see: FHA SFHPH 4000.1 – IV.A.2.a.(iv)(B)(2)

5. Audit Finding: No evidence was found to document that the borrower(s) received proper and timely written notification when a loss mitigation application was deemed to have been completed. The Real Estate Settlement Procedures Act (RESPA) requires such written notice be provided by a servicer to borrowers within five (5) business days of its receipt of a completed loss mitigation application.

TENA auditors continue to cite a steady number of findings that deal with servicers not providing a Notice of Complete Application after a fully complete application has been received by the servicer.  It is frequently found that a servicer received a loss mitigation application, requested no additional information from the borrower(s), yet failed to provide the borrower, within the specified five business day period, a Notice of Complete Application.

The Real Estate Settlement Procedures Act (RESPA) reads as follows:

(3) Notice of complete application.

(i)   Except as provided in paragraph (c)(3)(ii) of this section, within 5 days (excluding legal public holidays, Saturdays, and Sundays) after receiving a borrower’s complete loss mitigation application, a servicer shall provide the borrower a written notice that sets forth the following information:

(A) That the loss mitigation application is complete;

(B) The date the servicer received the complete application;

(C) That the servicer expects to complete its evaluation within 30 days of the date it received the complete application;

(D) That the borrower is entitled to certain foreclosure protections because the servicer has received the complete application, and, as applicable, either:

(1)   If the servicer has not made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, that the servicer cannot make the first notice or filing required to commence or initiate the foreclosure process under applicable law before evaluating the borrower’s complete application; or

(2)   If the servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, that the servicer has begun the foreclosure process, and that the servicer cannot conduct a foreclosure sale before evaluating the borrower’s complete application;

(E) That the servicer may need additional information at a later date to evaluate the application, in which case the servicer will request that information from the borrower and give the borrower a reasonable opportunity to submit it, the evaluation process may take longer, and the foreclosure protections could end if the servicer does not receive the information as requested; and

(F) That the borrower may be entitled to additional protections under State or Federal law.

TENA Recommendation: Review your firm’s policies and procedures as they relate to all communications with borrowers regarding loss mitigation applications. To test the firm’s processes, consider utilizing a targeted QC audit on a population of loans where a completed loss mitigation application has been received.  It is also important to review circumstances where an initial loss mitigation application was determined to have missing documentation and the borrower subsequently provided the additional documentation thus completing the loss mitigation application.

To review compliance requirements, see: RESPA 12 C.F.R. § 1024.41(c)(3)