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"When our reputation is at stake, we call Superior Home Services." Feature communicate the commitment to fair and responsible lending? What is the organizational hierarchy for compliance management? What authority is granted to the compliance officer and fair lending officer? How are management and individual compliance responsibilities defined, communicated, and monitored? Are policies and procedures established to address compliance risk within business functions and practices? •• Internal Controls – What policies, procedures, training, monitoring, testing, and assessment practices exist to limit fair and responsible lending risk? What process is in place to ensure accuracy and timeliness of disclosures, notices, and other communication with the consumer? How do you ensure that more or less favorable treatment does not occur? What efforts are made to monitor and test the consistency and fairness in customer outreach, levels of assistance, and loss mitigation efforts? What levels of monitoring and testing are preformed related to the technical requirements of fair lending laws and regulations? The assessment of performance risk can be somewhat blurred in mortgage servicing due to the nature of loss mitigation practices. Developing an effective system of data capture for analysis is the key to ensuring an accurate and complete review of collection practices, loss mitigation efforts, and foreclosure processes. New mortgage servicing rules and guidance issued by the CFPB provide a framework for "what" information should be reviewed. The challenge is in modifying existing systems or developing new ones to capture sufficient information in order to perform disparity analysis. There is also the underlying issue of how you determine the best outcome for the delinquent borrower. How do you define what is most beneficial to the customer? How much consideration is given to the customer's needs and desired outcome? What documentation is required to substantiate different outcomes driven by customer intent? Consider the following areas of risk when establishing policies, internal controls, and performance analytics: •• Collections, Loss Mitigation, and Foreclosure – What efforts are made to monitor and evaluate credit risk in the existing portfolio? What triggers are in place for collection efforts, loan modification options, and foreclosure action? What efforts are made to ensure the consumer understands their options? What documentation is required for different loss mitigation efforts? Area Description Practice Risk Collection triggers Loan documentation Processing times Third-party actions Default Servicing Outcome Disparities Loan modification Short sale Foreclosure •• Performance Analytics – What efforts are made to analyze the outcome of various loss mitigation options? How are disparities in levels of assistance, underwriting, and pricing evaluated? What efforts are made to evaluate potential risk associated with steering and redlining? What, if any, proxy methodologies are used in performance analysis? What comparators and/ or tolerances are established for disparity analysis and comparative file reviews? Option Disparities Reduced rates Term extensions Reductions in principal Exception Disparities Who do you rely upon? Policy exceptions Fee waivers Performance Risk T he performance risk assessment is a statistical evaluation of performance, not policies—not an evaluation of what is meant to happen, but what actually occurs. Disparities in any aspect of collections, loss mitigation, or foreclosure require additional research, as well as potential comparative file reviews. The "simple" truth is that fair and responsible lending risk will continue to evolve and expand into new areas of the credit life cycle. Mortgage servicers should be identifying, measuring, controlling, monitoring, and managing that risk—looking ahead and preparing, instead of waiting and reacting. Whether you perform risk assessments internally or choose to outsource the process to ensure independence, fair lending process and performance reviews need to be a component of your compliance management system. THE LEADER IN HAZARD INSURANCE RECOVERY & PROPERTY REPAIR MANAGEMENT 800.548.2858 15279 N. Scottsdale Rd. Suite 400 Scottsdale, AZ 85254 The M Report | 23

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