1. Pressure Points in Servicing Michelle Canter
Winter Workshop 2018
Los Angeles, CA
Pressure Points in Servicing
Michelle Canter
March 23, 2018

2. Loan Servicing in today’s environment
How does it make you feel?
Pool – right pocket, don’t scratch the cue ball
Tennis – constant volley
Baseball – it’s a simple game, you catch the ball, throw the ball, hit the ball…

3. Compliance Intersections create Pressure Points
Laying the Foundation
Compliance Intersections create Pressure Points
What is a compliance intersection?
What is a pressure point?
Compliance Intersections are those points during the business process a conflict can result from conflicting or inconsistent compliance rules
Pressure Points force business decisions
In sum
Solve one problem, create another?

4. What about loan servicing?
Examples
Origination
Fair Lending violation results, in part, from a procedure designed to ensure timely adverse actions are sent
What about loan servicing?

5. Life of Loan Servicing – Transaction Driven
Data fields
Loan Terms
Parties: Past/Current/Concurrent
Events, i.e., Loss Mitigation
Status Indicators
Payment Status
Current, Repayment, Delinquent, Default
Loan Status
Bankruptcy, Foreclosure, Loss Mitigation, Litigation
Property Status
Triggering Events

6. Snapshot – Life of Loan Servicing
Data
Loan Terms
Parties
Escrow
Status
Payment
Loan
Property
Trigger Event
Delinquency
Loan Sale or Transfer
Damage

7. Potential Pressure Points in Servicing
Fees, Statements, Disclosures, Loss Mit, Foreclosure and Licensing
Data + Status points
Loan boarding
FDCPA – when are you a debt collector
Bankruptcy: Escrow, default practices, payments
Periodic statements & Payoff Statements (state law requirements)
Events
Successor in interest
Hazard Insurance losses + Default servicing

8. Do you know the pressure points in your company or in your process?
Rules of the Road
Do you know the pressure points in your company or in your process?
How do you discover them?
How do you monitor them
What drives monitoring in loan servicing?
DATA
What are the danger signs
Litigation – the “rule of 2”
Consumer Complaints – the risks of “silos”
Exam Reports – one state, all states?
Process Gaps – struggle bus issues

9. Baseline – CFPB Exam Manual–9 Modules
1-6: Routine Servicing
Transfer Notices & Escrow Disclosures
Payment Processing & Account Maintenance
Customer Inquiries & Complaints
Escrow Accounts & Insurance Products
Credit Reporting
Information Sharing & Privacy
7 & 8: Default Servicing
Collections and Bankruptcy
Loss Mitigation
9: Foreclosure
Foreclosures

10. Compliance Intersections in Servicing
Disclosures
Statements
Loss Mit
TPSPs
Uniform Instruments
FC Laws
CFPB
BK & Other
Federal Law
State Law
Loan Docs
Investor Guides

11. The Compliance Requirements
Loan Documents
Governing Law
Fed
State
Investor
GSEs
Agencies

12. The difficulties of compliance
Laws
Docs
Agency
Investor
Loan
Fed
State

13. Compliance Intersections – What Yields?
Point
Counterpoint
Investor/ MI Rules
CFPB Rules
State Law
State Laws
Loan Docs
Disclosures/Statements
Uniform Instruments
Any of the above
Other Federal Laws
BK, ECOA, FDCPA, FCRA, Privacy

14. Compliance Intersections – Who Yields?
Point
Party
Investor Requirements
CFPB Rules
State Laws
Loan Docs
Uniform Instruments
Other Federal Laws
BK, ECOA, FDCPA, FCRA, Privacy
TPSPs (Vendors)
Mailhouse
Business Channel
Systems
Your P&Ps
Your “default” (i.e., if silent, then Fannie)

15. Pressure Points - Potpourri
Bankruptcy & Escrow
Hazard Insurance Losses
State Law
Investor Requirements
Delinquency & Loss Mitigation
Servicing Transfers & ACH Authorizations
Sale of Servicing Rights – Contract Obligations
ACH Rules / Privacy Rules
Timelines
System Limitations
TPSPs & Delivery Channel Challenges

16. Pressure Points - Potpourri
Boarding non-standard loans
Daily Simple Interest
Accrual Methods
Prior Loan Servicing Records
Servicing Transfer & Loan Sales
FDCPA & Debt Validation Notices
TILA 404 Notices
QWRs, RFIs, and NOEs

17. Practice Exercises
& Application

18. Special circumstances apply, including
Caveat
We will consider the Amended Servicing Rules as examples to discover compliance intersections and discuss pressure points
We won’t cover the Rules in detail; we’ll uncover potential areas for you to consider
Special circumstances apply, including
How you’re licensed (no preemption analysis)
Loan Type and Investor Rules
Your business model
Your servicing system(s)
Your Risk Tolerance
Your Policies & Procedures

19. Practice Exercise – Amended Servicing Rules
New intersections & pressure points are created
*Successors in interest
*Periodic billing statements – active bankruptcy
Loss Mit, early intervention & continuous contact
Definition of delinquency
Prompt payment crediting
Effective date: April 19, 2018
Successors in interest
Modified bankruptcy billing statements

20. Successors in Interest
Amended Rule
Servicer is required to establish a process for confirming a “successor in interest” and once confirmed, treat SII as a borrower for certain servicing rules
Who?
What?
How?
Who? “person to whom an ownership interest in a property securing a mortgage loan is transferred”
Transfers by devise, descent or operation of law on the death of a joint tenant or tenant by the entirety
Transfers to a relative resulting from a borrower’s death
Transfers where the spouse or children of the borrower become an owner
Transfers to a spouse resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement
Transfers into an inter vivos trust in which the borrower is and remains a beneficiary

21. Successors in Interest Amended Rule
Confirmation Process
Upon receiving notice of the existence of a potential SII, Servicers must have P&Ps reasonably designed to:
Facilitate communication with any potential or confirmed SIIs; and
Determine documents reasonably required to confirm the potential SII identity and ownership interest and communicate the requirements to the potential SII
Upon receipt of documents from a potential SII, promptly make a determination and notify the person either that additional documents are required, individual is confirmed, or individual is not a successor

22. Successors in Interest Confirmation Process
Confirmation process must be based on documents “reasonably required”
Laws of the jurisdiction
Specific situation of potential successor; and
Documents already in Servicer’s possession
Prompt confirmation
Will not be prompt if it unreasonably interferes with a SII’s ability to apply for loss mitigation options

23. Confirmed SII = Borrower
A confirmed SII receives Reg X & Reg Z protections
Payment crediting
Complaints: Notice of Error or Requests for Information
Loss Mit, early intervention & continuity of contact
Statements & Disclosures
ARM rate change notices
Escrow account
Mortgage servicing transfers
Force-placed insurance
Periodic billing statements

24. Successors in Interest Communications
Once confirmed, successors in interest may need/want to receive servicing correspondence
CFPB recognizes that language in “borrower” correspondence could confuse an SII; 3 options
Alter all letters – flexibility built in for notices with required content
Add an affirmative disclosure to clarify that a SII who has not assumed the loan is not liable
Send SII a written notice and require that acknowledgment form be signed and returned before correspondence is sent
Servicer only required to send correspondence to one borrower/successor

25. RFI – Potential vs. Confirmed SII
Potential SII
Confirmed SII
Upon receipt of written request
(1) describe documents you need to confirm identity and property ownership
(2) Provide Contact information & phone for further assistance
(3) Must tell person a new request may be submitted once SII status is confirmed
Written request treated as RFI
triggers all procedural requirements of (acknowledgment, response, timing, etc.)
In certain instances, a Servicer’s response can omit location and contact information and personal financial information
Servicers required to provide other information
Servicers required to comply with
In certain instances, a Servicer’s response can omit location and contact information and personal financial information

26. Successor in Interest – Loss Mit
Amended Rule: Servicer must offer Loss Mit protections, and is bound by all Loss Mit requirements, for Loss Mit applications submitted by confirmed SII
What about potential SII?
Not required – but may – review & evaluate applications received from potential SII
If a Servicer chooses not to review/evaluate an application received from a potential SII, the application must be preserved and Servicer must review/evaluate when SII is confirmed

27. Definition of Delinquency
Prior Rule
Delinquency begins on the day a payment sufficient to cover principal, interest, and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due date to pay before being assessed a late fee
Definition limited to sections and
Amended Rule
A borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid
Servicers may incorporate payment tolerance
Definition applies to the mortgage servicing subpart of Regulation X (subpart C) and

28. Snapshot of Loss Mit Timelines
Delinquency
Loss Mitigation
Delinquency
90 before FC Sale
45 before FC Sale
38 before FC Sale
7 before FC Sale
Foreclosure Sale
Delinquency = Due Date
DQ 36 – Live Contact
Day 45 – Written Contact
DQ 121 – 1st Legal
Foreclosure Sale

29. Loss Mitigation Decisioning
What is a “Complete” Loss Mit Application?
The day timelines
Is the Borrower “eligible”?
Understand the Waterfall
Adverse Action Notices–Loss Mit
What is Specific Reason for denial
NPV Inputs
In-Flight Loss Mitigation
Inherit the status
New timelines

30. Foreclosure Timeline Issues
Master Timelines and Conflicts with State Law
Default Management Systems (FiServ, MSP, Other)
Loss Mitigation Systems & Recordkeeping
When is a Foreclosure Sale Set?
54 Jurisdictions / Different rules & customs
Different Investor & MI Requirements
Are Dual-Tracking Triggers consistent?
Who will communicate to the Borrower?
Note about bankruptcy – differences exist at Judge Level, Division Level, State Level

31. Early Intervention FDCPA Exemptions
Amended Rule (cont.)
Borrowers who provided an FDCPA C&D request
Servicer exempt from early intervention LIVE CONTACT
Servicer exempt from the WRITTEN NOTICE only if:
Loss mitigation options are not available; or
The borrower is a debtor in bankruptcy
Written notice for accounts with FDCPA C&D
Magic language – Servicer may or intends to invoke remedy of foreclosure (Model Clauses provided)
May not include request for payment
Only provide once during any 180-day period

32. Early Interviention Bankruptcy Exemptions
Servicer exempt from LIVE CONTACT requirements
Servicer exempt from WRITTEN NOTICE only if:
Loss mitigation options are not available; or
Borrower has provided FDCPA C&D
Send written notice 1 time during BK; must send within 45 days based on delinquency status and BK Filing
If delinquent on BK Filing date, send in 45 days
If become delinquent after BK Filing, within 45 days
Notice may not contain a request for payment

33. Loss Mitigation Notice of Complete Applications
Prior Rule
Notice that application is complete not expressly required, unless part of acknowledgment letter
Amended Rule
Within 5 business days of receipt of a complete App, a Servicer must provide a written notice to the borrower (subject to certain exceptions) with the following information:
That the application is complete;
The date the Servicer received the complete application;
That the evaluation should be completed within 30 days;
Explanation of applicable dual tracking protections;
That the Servicer may later need additional information; and
That the borrower may be entitled to additional protections under State or Federal law

34. Loss Mitigation Duplicative Requests
Prior Rule – “One & Done”
Servicer only required to comply with loss mitigation requirements of for a single complete loss mitigation application on an account
Amended Rule
Servicer must comply with loss mitigation requirements of for all loss mitigation applications, unless
Servicer has previously done so for a complete application AND
borrower has been delinquent at all times since submitting prior complete application

35. Loss Mitigation Review All Options – Borrower Preference
Prior Rule
Informal guidance suggested that Servicer/investor can generally deny loss mitigation options based on a borrower’s preference and, in turn, not collect documents related to option(s) in which borrower has not expressed interest
Permits Servicers/investors to bifurcate home retention and non-home retention process based on borrower preference
Amended Rule
Servicer may not stop collecting documents/information for any loss mitigation option based solely upon a borrower’s stated preference
May stop collecting documents/information based upon a borrower’s stated preference in conjunction with other information, as prescribed by any requirements established by the owner or assignee

36. Loss Mitigation & Servicing Transfer Overview
Servicers must identify In-Flight Loss Mit as of Servicing Transfer Date
General Requirements
Loss Mit rights / protections available before transfer continue to apply after transfer
Unique Requirements
Comply with Loss Mit timeframes from date Loss Mit app received by Transferor
Must provide “Reasonable Date” in LM Ack Notice (pending LM app); min. 7 – 30 days
Unique Dual Tracking Protections: No 1st Legal until LM Ack reasonable date expires

37. Loss Mitigation Servicing Transfers – In-Flight Loss Mitigation
Status as of Transfer Date
Next Action Required after Transfer Date
Pressure Points
LM App received, LM Ack. Notice not yet sent
Send LM Ack & Missing Docs within 10 business days; provide “reasonable date”
LM App status
LM Ack Status
Complete LM App pending
Evaluate + send LM Eval Notice within 30 days
Appeal Pending
Within 30 days
- Send Appeal Decision OR
- Evaluate + send LM Eval Notice (treat as Complete)
Unique dual tracking restrictions; no 1st Legal until reasonable date LM Ack expires
Appeal Period Open, not expired
Wait for appeal period to expire; or Resolve appeal within 30 days
LM Offer Pending
Allow Borrower to accept
Prior Rule
A Servicer that obtains the servicing of a mortgage loan for which an evaluation of a complete loss mitigation application is in process should continue the evaluation to the extent practicable
Also P&P requirements and CFPB bulletin
Amended Rule
Generally, if a transferee Servicer acquires servicing rights to a loan for which a loss mitigation application is pending as of the transfer date, the transferee must comply with the loss mitigation requirements within the timeframes that were applicable to the transferor based on the date the transferor received the application

38. Amended Rule - Periodic Billing Statement
Amended Rule requires modified statement based on loan status
Acceleration
Temporary Loan Mod vs. Permanent Loan Mod
Chargeoff

39. Periodic Billing Statements – Options per Status
Standard
Option
Pressure Points
Acceleration
Accelerated Amount
*Reinstatement Amount +
   
 P&P
* May add “good thru” date & special payment instructions
- Omit regular mo. payment
Loss Mit Program
What is Amount Due
Perm Mod
Temporary Program
Per Contract
Per Contract AND
Per Temporary Program
  
Charge Off
Continue to send
Cease after (1) providing “Charge Off Disclosure” statement (2) stop fees
Label “Suspension of Statements & Notice of Charge Off—Retain This Copy for Your Records” label

40. Periodic Billing Statements – Bankruptcy
Status
Active BK
Post-BK Discharge
Pressure Points
General Rule
Send Modified Content
(Model Forms)
Exempt (Don’t send)
  
  P&P
Exception
Cease Sending
Court Order
Upon written request
Debtor surrender or lien avoidance
Start Sending
- If Debtor reaffirms
- Upon written request
Court
TPSPs
P&P
Transition
Exempt for 1 cycle, if trigger event within 14 days of next cycle
Resume statements within reasonably prompt time
SOR
C&D
Address
May designate
Current Rule
Exemption for borrower in active bankruptcy and those who have received a discharge
Amended Rule
Generally requires periodic billing statements to be sent to consumers in bankruptcy, subject to certain exemptions, and with modified content depending on the type of bankruptcy
Model Forms for borrowers based on bankruptcy chapter (Chapter 7 or 11); Chapter 12 or 13 case
Amended Rule (cont.)
Exemption from statement requirement no longer applies if:
The consumer reaffirms personal liability for the loan; or
The consumer requests in writing that statements be provided (subject to court order restricting/preventing statements)
Designated address may be established for requests for statements, and requests to cease sending statements
When transitioning to, or from, a modified periodic statement, if the next billing cycle due date is within 14 days of the triggering event, then the Servicer is exempt from the statement requirements for one cycle
Statements must resume within a reasonably prompt time after the next billing cycle

41. Periodic Billing Statements – Bankruptcy Status
Modified Periodic Billing Statement not required for active bankruptcy if any of the following apply
Written request by consumer to cease
BK Plan provides for
Surrender or lien avoidance
No payment of pre-bankruptcy arrearage or no maintenance of ongoing payments
Debtor files Statement of Intent to Surrender AND no payments are made after BK filing
Court Order
Grants relief from stay or lien avoidance
Requires Servicer to cease statements

42. Bankruptcy Billing Statements - Content
Modified Content for Borrowers in Bankruptcy
Not required to contain the following:
Late fee amount and expiration of grace period
Date that the consumer became delinquent;
Possible risks if delinquency not cured
Whether 1st Legal has been made by Servicer
Must contain:
Statement identifying the status as debtor in bankruptcy or discharge status
BK Disclaimer: “For informational purposes only”

43. Canter’s Closing Comments
The Low Hanging Fruit
Don’t learn compliance intersections from your regulator or in litigation
The Silver Platter
Data does not lie,
unless the data is wrong

44. Questions? Questions? A. Michelle Canter mcanter@bradley.com
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