Mortgage Servicing Quality Control

Notable Audit Findings:  April – June 2018

In excess of 20,000 mortgage servicing Quality Control reviews were conducted during the second quarter of 2018 and over 1,700 unique audit exceptions were cited by TENA auditors during that period. Those audit results were analyzed to identify emerging trends and common findings with the following five audit findings identified as notable.

1. Audit Finding: The Notice of Servicing Transfer did not contain the required information as laid out in the Real Estate Procedures Act (RESPA).

The Real Estate Settlement Procedures Act as outlined in Part 1024, Subpart C: Mortgage Servicing, §1024.33: Mortgage Servicing Transfers requires servicers to provide borrower(s) with notices regarding the transfer of loan servicing rights.  For any assignment, sale, or transfer of servicing of a mortgage loan, the transferring servicer and the transferee (receiving) servicer of any mortgage loan shall provide to the borrower a notice of transfer. Said notice must contain the required elements outlined in paragraph (b)(4) of  Part 1024, Subpart C: Mortgage Servicing, §1024.33. Paragraph (b)(4) specifies that each required notice of servicing transfer contain the following data elements:

• The effective date of the transfer of servicing;
• The name, address, and a collect call or toll-free telephone number for an employee or department of the transferee servicer that can be contacted by the borrower to obtain answers regarding servicing transfer inquiries;
• The name, address, and a collect call or toll-free telephone number for an employee or department of the transferor servicer that can be contacted by the borrower to obtain answers regarding servicing transfer inquiries;
• The date on which the transferor servicer will cease to accept payments relating to the loan and the date on which the transferee servicer will begin to accept such payments. These dates shall either be the same day or consecutive days;
• Whether the transfer will affect the terms and/or the continued availability of mortgage life insurance, mortgage disability insurance, or any other type of optional insurance and what action, if any, the borrower must take to maintain such coverage; and
• A statement that the transfer of servicing does not affect any term or conditions of the mortgage loan other than terms directly related to the servicing of the loan.

TENA’s second quarter, 2018 audit analysis has revealed that the servicing transfer notices provided to the borrower are often missing one or more elements. The specific bullet most frequently found to be missing is: “Whether the transfer will affect the terms or the continued availability of mortgage life or disability insurance, or any other type of optional insurance, and any action the borrower must take to maintain such coverage.”

TENA Recommendation: Review your firm’s policies and procedures as they relate to all communications with borrowers during the transfer of servicing. To test the firm’s processes, consider utilizing a targeted quality control audit on a population of loans where servicing rights have been transferred.

For guidelines regarding this matter, consult:  RESPA 12 C.F.R. § 1024.33(b)(4)

2. Audit Finding: There was no evidence a payment reminder notice with the required content was sent to the borrower within the required time frame.

One part of the Fannie Mae collection procedures requires that a servicer provide the borrower with a payment reminder notice by the 17^th day of delinquency.  The Payment reminder notice must:

• Address the borrower by name;
• State a desire to work with the borrower to preserve homeownership;
• State the amount of late charges that are due, if applicable;
• Include an explanation that the borrower can seek assistance with household budgeting at no charge from HUD-approved housing counseling agencies and provide a link to HUD.gov; and,
• Include information regarding resources that are available to the borrower on Fannie Mae’s Know Your Options™

During the second quarter of reviews, TENA observed that notices sent to borrowers prior to the 17^th day of delinquency were frequently missing one or more of the information elements required by Fannie Mae. The most common elements missing from payment reminder notices that were provided prior to the 17^th day of delinquency were: a) links to HUD.gov, b)providing information regarding resources on Fannie Mae’s Know Your Options™ website, and, c) stating the correct amount of late charges that are due.

TENA Recommendation:  Review your firm’s policies and procedures as they relate to all communications with borrowers during the delinquency process. To test the firm’s processes, consider utilizing a targeted quality control audit on a population of loans that are 30 or fewer days delinquent and early in the collections process.

For references regarding compliance with this matter, review this publication: FNMA Servicing Guide D2-2-03

3. Audit Finding: The servicing system did not reflect the correct modified terms.

One component of TENA’s loan modification audit is to verify that all of the terms in the loan modification agreement have been updated in the servicer’s systems of record.  Updating the servicing system is important to ensure the borrower’s payments are processed correctly and that no misinformation is provided to the borrower as a result of reliance on outdated data. Virtually all agencies require servicers to promptly update their systems as soon as a fully executed agreement is received.  In the 2018 second quarter audits, TENA reviewed a number of loans that had been modified but incorrect terms were still reflected in the system of record. A higher incidence of findings were found when reviewing loans that had been transferred to a new servicer after the modification had been completed.

TENA Recommendation: Periodically review all policies and procedures regarding the updating of systems of record after a loan has been modified.  Performing targeted quality control reviews on loans that have been through a completed modification process can help identify breakdowns that may exist within the company’s procedures. When transferring loans into a servicing portfolio, it is important to review the accuracy of the information that is being transferred. Targeting loans for review that have been through a loss mitigation workout process is an effective way to ascertain that proper procedures are in place to ensure that borrowers continue to get accurate information.

For additional information regarding this matter, review:

• FHLB MPF Xtra Servicing Guide
• FNMA LL-2017-09: Fannie Mae Extend Modification for Disaster Relief (11/02/17)
• FNMA Servicing Guide F-1-30
• FHA Mortgagee Letter 2016-14
• FHA SFHPH 4000.1 – III.A.2.k.(v)(F)(5)(a)
• FNMA LL-2016-02: Fannie Mae Principal Reduction Modification (04/14/16)
• FHLMC Single-Family Seller/Servicer Guide, 9206.18(b)
• FNMA 2017 Servicing Guide F-1-19
• FNMA Servicing Guide F-1-13
• FNMA 2017 Servicing Guide F-1-20
• FNMA 2017 Servicing Guide F-1-18

4.  Audit Finding:  The Trial Payment Plan (TPP) Agreement did not state that after successfully completing the TPP, the borrower must continue making payments in accordance with the terms of the signed TPP Agreement until the permanent FHA-HAMP loan has been ratified by all parties.

In the second quarter of 2018, TENA noticed an uptick in findings wherein the Trial Payment Plan failed to meet HUD’s 4000.1 FHA Single Family Housing Policy Handbook requirement which reads as follows:

“Agreement documents stipulate that after successfully completing the TPP, the Borrower must continue making payments in accordance with the terms of his or her signed TPP Agreement until his or her permanent FHA-HAMP Mortgage has been ratified by all parties.”

TENA Recommendation:  To ensure that all regulatory requirements are being adhered to, periodically analyze your firm’s internal processes for identifying, reviewing, and updating new and/or modified regulatory requirements as they are released. It is also important to periodically review borrower agreements, letters, communications, etc. to ensure that their content is compliant and that all regulatory requirements are being consistently met.

To review compliance requirements, see: FHA SFHPH 4000.1 – III.A.2.k.(v)(F)(3)(b)(ii)

5. Audit Finding: The Annual Privacy Notice required by the Gramm-Leach-Bliley Act was not provided to the borrower.

During the first two quarters of 2018, an Annual Disclosure area of inquiry (AOI) review was performed for many TENA clients.  One part of that review is to test that the annual privacy notice required by Gramm-Leach-Bliley has been provided to the borrowers by the servicer.  The act specifies:

“You must provide a clear and conspicuous notice to customers that accurately reflects your privacy policies and practices not less than annually during the continuation of the customer relationship.  Annually means at least once in any period of 12 consecutive months during which that relationship exists.”

TENA’s audits revealed that many servicers have not been providing the required annual notice to their borrowers.

TENA Recommendation: Review your firm’s policies and procedures as they relate to providing the annual privacy notice to borrowers.  If a third-party vendor is used to fulfill this requirement, remember to annually review the vendor’s processes and the agreement governing them. To test that the notice requirements are being adhered to, consider utilizing a targeted QC audit on a population of loans where the annual notice is required to be provided.

To review compliance requirements, see: GLBA 12 C.F.R. § 1016.5(a)(1)