Cracking The Crackdown

As a top provider of high-performance software, data and analytics solutions for the mortgage industry, Black Knight continually monitors regulatory technology and industry updates for their potential impact. Staff also meet with regulatory bodies like the CFPB to gather insights and share feedback with clients. 

“This provides us with yet another opportunity to continue to assist our customer base with compliance through thought leadership and a variety of technologies to monitor and automate related processes,” Federspiel says of the ‘junk fees’ crackdown, adding, “What the CFPB is really targeting here is compliance more than intent.”

So whether they snuck in an extra payment or simply miscalculated the charge is irrelevant. 

How To Come Clean

Lenders should make sure their Loan Origination System (LOS) is set to the correct rate-fee cap within a loan agreement to avoid issuing inaccurate late fees.

Ongoing property inspections to delinquent borrowers are often handled by third-party servicers, who charge the borrower. In certain cases the CFPB has found that servicers repeatedly sent property inspectors to the wrong address, charging the borrower in each instance.

Federspiel recommends companies perform a data quality check in their system for addresses that require regular inspection.

“In real estate there’s a saying - the number one rule is location, location, location,” she says. “For servicing portfolios and the management of these I would say the number one rule is data, data, data. The volume of data in this industry and access to it just grows exponentially each year. In order to review servicing portfolios, originators and servicers alike really need to have a trusted technology partner to provide best-in-class integrated solutions and more importantly, intelligent analytics. That allows them to spend their time focusing on the customer.”

Lenders typically require borrowers who put less than 20% down on a loan to purchase PMI, which can be dropped while the loan is still current and the principal balance reaches 78% of the property’s original value.  

“This should happen automatically but in some cases it doesn’t,” Federspiel says. 

To avoid PMI overcharges lenders should ensure their servicing system tracks loan activities and has the ability to determine when PMI should be terminated, then updating portfolios accordingly. 

Finally, the federal CARES Act put into place during the covid-19 pandemic required servicers to waive specific fees and penalties for borrowers facing a pandemic-related financial hardship. 

Those that received a waiver under the CARES Act are not required to pay back missed payments in a lump sum post-forbearance, no matter what they hear.   

Federspiel encouraged servicers to set stops in their system to prevent fees from being charged in these instances and when evaluating for loss mitigation in arrearage.

Fuel To The Fire

The CFPB received around 29,000 complaints related to mortgages last year, enough to provoke a crackdown. 

One servicer identified in this year’s undertaking faced a $5.25 million penalty for misleading customers who requested forbearance about CARES Act repayment options. 

Aside from an official retribution, servicers in violation can face retention and referral losses. 

Staying apprised of developments like the CFPB initiative and looking out for the best interests of lenders are trade associations like the Florida Association of Mortgage Professionals (FAMP). 

“We’re keeping a careful eye on making sure things are meeting compliance and regulations,” FAMP President Nathaniel Bittman says. “We’re educating a tremendous amount of licensed loan originators and even some non-licensed LOs in the area of how to manage compliance, make sure they’re up to date with the right vendors, lenders, resources and tools so that they can advance forward in an ever changing technological association as well.”

Black Knight’s flagship product, MSP, manages loans after they’ve been turned over to servicers.

“We really do make sure we provide the flexibility and monitoring tools for our customers to stay compliant with the requirements coming down from the CFPB and other regulating bodies,” Federspiel says. “Some examples that can be put into play are monitoring solutions to identify anomalies or exceptions and potentially have automation for immediate correction of those exceptions that have been identified. Another recommendation would be to perform internal audit and data quality checks on a regular basis to ensure accuracy of the data you have inside the application itself, especially given that this industry tends to have movement of data.”

When servicing transfers between different providers, for example.

Performing regular internal audits can position companies within the confinements the CFPB has recommended with respect to fee management.

“Originators and servicers need to work together,” Federspiel says. 

It’s important to ensure that the terms reviewed by the customer in the contract have been automated so a system goes on to calculate fees accordingly. 

“Having accurate data is what’s going to keep you from having any potential compliance issues associated with the fee management side,” she adds.

Another Complication

It’s no secret that times have been tough for LOs and mortgage companies, and introducing another zone for potential pitfalls doesn’t make anyone gleeful. 

Linda Davidson, senior loan officer with Fairway Independent Mortgage, understands the challenge industry professionals can have getting their systems in line, necessary as it may be. 

“We’ve never been big on junk fees…but I can see where mortgage companies would have been using those fees just to basically shore up the bottom line,” Davidson points out. “And if they’re not charging those fees coupled with everything else that’s costing more I can certainly see where it would affect the bottom line and even viability of that mortgage company to stay in business. We’re seeing Freddie and Fannie be very strict; they’re kicking back more loans than we’ve ever seen them kick back.”  

Maybe a slow-moving portfolio lends itself well to a checkup. So when better times shine down (and they will) systems will be set for takeoff.