Decoding Compliance

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feature state-of-the-art capabilities, will determine a company's ability to compete. "Technology investment is a must," Patankar stated. "It's especially important because the business rules and existing technology and what is being proposed is a completely different approach to managing the customer interaction," he elaborated. "Therefore the technology has to be upgraded or recustomized or reprogrammed to handle some of these requests." Patankar continued: "The process flow has to be streamlined so that it can handle items in a timely manner, and customer contact points must be rearranged and monitored. Call records have to be stored so they can be retrieved for quality checking purposes. The technology is available, but it will require money and expertise." "Servicers are going to need to look at automation systems," Elkins noted. "Companies can definitely bring in consultants to help them set up their systems." However, solutions for compliance with rules governing policies and procedures for detailed reporting on borrower communication, delinquencies, and loss mitigations are not so clear-cut. "So you have to document everything very well," Fey stated. "Otherwise a customer can say that you didn't do it. If the customer didn't respond, for example, how do you prove that you tried to reach out to the customer? How do you prove the customer turned you down? Those are the pieces that are a little more difficult for us as we go through the year. Implementation is pretty straightforward. Documentation is not. It's all new for everyone." People's Republic T he legislative environment is likely to generate a sunny side effect for servicing professionals, as companies will need to on-board additional personnel, according to 32 | The M Report "The others that are purely servicers will have a challenge coming. But they really have no way out. They will comply, sell themselves off, or merge with a bigger player as a way to continue the business model. So the servicing structure is going to look different, and it is going to change significantly as we move forward." — Niket Patankar, Sutherland Global Services Fey. Industry leaders will be targeting highly trained employees to handle borrowers, and Fey, whose company is a smaller, single-point-of-contact business, has already increased his data team to ensure top-notch compliance with CFPB mandates. Fey illuminated the methodology he deployed when establishing the company in 2008, stating his goal was to mimic the customer care approach observed among financial companies in the 1950s, resulting in a strategy that's likely to be beneficial when implementing new rules. "Our hiring process is a little different," Fey said. "All of our senior servicers are college educated and are all people who used to work in origination. They know how to talk to people. It's a different setup, and it's very effective for people." He went on to project that big banks and mega-servicers may incur additional difficulties and costs when finding, hiring, and training the right personnel. "There are a lot of things big box servicers are dealing with," Fey noted. "But I would be most worried about having the proper staff with the proper training in place for the kind of thing we do. It will be difficult. But not impossible." Outsourcing and off-shoring internal office work is another avenue servicers may consider in crafting a strong compliance strategy. Either gives companies flexibility and reduces costs by hiring fewer staffers to accomplish tasks unrelated to consumer-facing practices. "While back-office work may be outsourced, customer touch points will still remain on shore," Patankar said. "I doubt the actual physical contacts with customers will go offshore. Managing the back office, processing of the servicing business can go offshore." Costly Consolidation A dding to uncertainty for servicers, the Federal Housing Finance Agency (FHFA) announced in late February that it will propose a flat $10 fee for servicing nondelinquent loans. "The fee-for-service proposal on top of the CFPB rules have to be looked at in conjunction," Patankar said. "This would lead to more consolidation of the top banks and servicers. But it would also mean that smaller and middle-size players would have to look at other options or significantly recapitalize in order to handle these requirements." It's worth noting that a similar fee was previously proposed by the FHFA but was never adopted. Foreshadowing a climate conducive to mergers with larger servicers or dramatic reductions in operations for smaller companies, Patankar's commentary heralds more consolidation in the industry, as entities with the money to invest in technology, people, compliance initiatives, and enhanced processes expand their market share. Most of the big servicers— banks—will continue to grow. While that may spell trouble in the mortgage industry, borrowers may receive the CFPB's intended consequences, as entities with plenty of capital and partnerships with other financial institutions maintain an interest in keeping their customers satisfied. "The others that are purely servicers will have a challenge coming," Patankar said. "But they really have no way out. They will comply, sell themselves off, or merge with a bigger player as a way to continue the business model. So the servicing structure is going to look different, and it is going to change significantly as we move forward." Fey agrees that the industry is in for a shakeout. But he remains optimistic about the servicing sector. "I have a very bullish feel about the space," he explained. "There is still going to be just as many mortgages as homes, so there is still a need for the service." In conclusion, Patankar called the CFPB's regulations a step "in the right direction . . . . We have not seen this kind of environment before, and therefore I believe this will be good for the customers in the long run."

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