Mortgage Servicing Quality Control
Notable Audit Findings: July – September 2017
Over 20,000 mortgage servicing Quality Control audit findings involving of over 1,700 separate and unique audit exceptions were cited by TENA auditors during the third quarter of 2017. That data pool was analyzed to identify emerging trends and common findings. The following five audit findings were identified as being notable.
- Audit Finding: The servicer failed to check records within two weeks of receiving the bankruptcy notice to determine if the borrower had previously filed for bankruptcy.
In the third quarter of 2017, TENA noted an uptick in findings relating to servicers that had failed to check records to determine if a borrower had previously filed for bankruptcy on loans where Fannie Mae was the investor.Fannie Mae’s Single Family Servicing Guide states:
“Within two weeks of a borrower filing for bankruptcy, the servicer must check its records for the mortgage loan to determine whether a previous bankruptcy has been filed.See E-2.3-01, Identifying Abusive Filers (11/12/2014) for additional information.”
The Identifying Abusive Filers publication indicates that the servicer must immediately refer any case involving an abusive filer to a law firm and ensure that the law firm closely monitors the status of the filing.
TENA Recommendation: Review your firm’s current process for checking borrowers that have filed for bankruptcy protection to ascertain if they have any previous bankruptcy filings. Then ensure that such checks are effectively documented in the servicing system of record.
To ensure compliance review: FNMA Servicing Guide E-2.1-02.
- Audit Finding: The interest owed amount shown on the payoff statement was not calculated correctly.
During this period, TENA auditors cited an increased number of audit exceptions due to errors in the calculated amount of interest owed that was listed on the payoff statement.When reviewing payoff statements, it is important to ensure that the right calculation is being used. The manner of calculating owed interest could vary with each of the major loan types and across investors.The calculations also change when recalculating a full month period vs a partial month.Specific to FHA loans, the agency changed the method of calculating the amount of owed interest changed for all loans closed on or after January 21, 2015. For FHA loans, it is important to use the calculation method applicable to the time the loan was closed.
TENA Recommendation: To help identify potential issues with a firm’s payoff statements, periodically perform a thorough review of the payoff statements, including recalculation of the owed interest, on a sample of loans that adequately covers each major loan type and investor.
To ensure compliance review the following:
- VA Servicer Handbook M26-4: 3.03, a(4)
- FHLMC Single-Family Seller/Servicer Guide, 8103.6(a)
- FHA SFHPH 4000.1 – III.A.1.e.(v)(C)
- FNMA Servicing Guide F-1-11
- Audit Finding: The property management vendor failed to remove debris from the interior and exterior of a property, and/or the interior of the property was not kept in broom-swept condition through the time of conveyance.
While performing reviews in the Property Management area of inquiry TENA auditors noted a number of findings relating to properties not being keep in “Broom-swept Condition” through the time of conveyance to HUD. The Mortgagee must ensure that the property continually meets a number of conditions including the following:
- Interior and exterior debris is removed, with the Property’s interior maintained in Broom-swept Condition, the lawn is maintained, and all vehicles and any other personal property are removed in accordance with state and local requirements.
The FHA defines “Broom-swept Condition” to mean that the condition of the property is, at a minimum, reasonably free of dust and dirt, and free of hazardous materials or conditions, personal belongings, and interior debris. When citing these findings, TENA auditors noted that the interiors of numerous properties still contained personal belongings and/or the properties had not been kept reasonably free of dust and dirt.
TENA Recommendations: Interpretations of the “Broom-swept Condition” can vary significantly between servicers and property management companies. It is important to review your firm’s expectations regarding Broom-swept Condition with each vendor that is being used to perform property management functions on behalf of the firm. A periodic review of such properties should be undertaken to ensure that those vendors are complying.
To ensure compliance review: FHA SFHPH 4000.1 – III.A.2.t.(ii)(A); (ii)(C)(7)(f).
- Audit Finding: The loan previously had force-placed insurance in place; however, an annual written notice of renewal or replacement of existing force-placed insurance was not provided to the borrower.
In the third quarter, TENA reviewers observed an increase in RESPA related findings that pertained to annual written notices of renewal or replacement of existing force-placed insurance. TENA’s audit metrics indicated an increase in incidents where servicers failed to provide borrowers with the required notice of force-placed insurance renewal or replacement at least 45 days prior to assessing the associated charges to the borrower. The Real Estate Settlement Procedures Act (RESPA) states:
(e)Renewing or replacing force-placed insurance.
(1) In general. Before a servicer assesses on a borrower a premium charge or fee related to renewing or replacing existing force-placed insurance, a servicer must;
(i) Deliver to the borrower or place in the mail a written notice containing the information set forth in paragraph (e)(2) of this section at least 45 days before assessing on a borrower such a charge or fee;
TENA Recommendation: Review procedures and processes around the renewals or replacement of force-placed insurance. Targeting populations of loans that have force-placed insurance for discretionary quality control reviews is one way to help identify potential servicing issues relative to force-placed insurance.
To ensure compliance review: RESPA 12 C.F.R. § 1024.37.
- Audit Finding: The escrowed property tax payments were not paid on time or were inconsistent with the amount listed in the servicing system.
For loans with tax escrows, during the third quarter of 2017, TENA continued to see increases in tax payments not being paid on time and/or discrepancies between the tax paid with the amount that was listed in the servicing system. TENA also listed this as a notable finding in the first quarter of 2017.The Real Estate Settlement Procedures Act (RESPA) states:
(k)Timely payments.
(1) If the terms of any federally related mortgage loan require the borrower to make payments to an escrow account, the servicer must pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower’s payment is not more than 30 days overdue.
(2) The servicer must advance funds to make disbursement in a timely manner as long as the borrower’s payment is not more than 30 days overdue.Upon advancing funds to pay a disbursement, the servicer may seek repayment from the borrower for a deficiency pursuant to paragraph (f) of this section.
TENA Recommendation: Analyze your firm’s quality assurance process for reviewing the accuracy of the tax due date and the tax amounts that are entered into the servicing system when the loan is initially on-boarded. For seasoned loans, a periodic reaffirmation of tax due dates and amounts due will help ensure that future tax payments are made on a timely basis without penalties.
To review the entire RESPA section on escrow accounts and timely payments see: RESPA 12 C.F.R. § 1024.17(k)(1).
