MReport April 2018

TheMReport — News and strategies for the evolving mortgage marketplace.

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24 | TH E M R EP O RT FEATURE A s we quickly approach the 10-year mark for Fannie Mae's and Fred- die Mac's conservator- ship, it's difficult to surmise the extent of regulatory change that the mortgage industry has under- gone, not to mention the scope of process transformation. Touch- ing each aspect of the mortgage lifecycle, the group that crossed perhaps the most significant chasm is mortgage loan servicers, who maintained a relatively stable existence before the regulatory shake-up. Managing the onslaught of delinquencies, which quadru - pled from 2007 to 2010, servicers overcame significant hindrances, including limited loss mitigation options, antiquated technology, and the absence of resources to scale. Those that have survived the past decade have done so with a pioneering spirit, persever - ance, and sophisticated workflow. Mortgage loan servicers are fairly settled at this juncture; however, as the industry enters post-crisis mode, there's a new phase of operational disruption on the horizon—deregulation. Housing research and industry reports depict a sunny picture for the future of servicing, with delinquency rates returning to pre-recession levels, servicing enti - ties of various sizes jockeying for servicing rights, and policies that promise to ease regulation. Upon closer look, mortgage servicers could be facing an entirely new set of obstacles, especially if unprepared for continued opera - tional change. In a segment of the industry where profits are exceed- ingly thin, and the cost to service has risen year over year, manag- ing deregulation could prove to be a monumental challenge. Servicing requirements have and continue to vary by the investor, federal agency, and state regulator, which create inconsis - tencies in the options available to the delinquent borrower, as well as discrepancies in interpretation and execution of rules. Pending legislation will force servicers to reevaluate and rework existing processes, modify rules admin - istration, and decouple systems. This process is not cost-efficient or straightforward, but without the capacity to readily con- form ongoing industry change into back-office operations and workflow, the resulting opera- tional impact could be profound. Many predict that lenders and servicers will continue to operate under current, more restrictive requirements instead of upsetting operational practices or technol - ogy systems and solutions that support these processes. It is important for servicers to understand the breadth of potential impact from pending regulatory amendments and new legislation, as well as streamlined servicing requirements issued by the GSEs and the Consumer Financial Protection Bureau (CFPB). This background will ensure servicers are equipped to handle operational and regulatory disruption. Given the complex - ity of today's servicing platforms, without automated workflow and an interactive workout rules engine, servicers could face the costly prospect of altering existing systems to accommodate regula- tory changes. Coming Down the Pipeline S ignificant legislation looms in the background with the regulatory change proposed through many bills submitted under the Trump administration. Although the intent is to reduce the regulatory burden, future lawmaking is vast and will touch the entire mortgage industry. The House Financial Services Com- mittee issued a press release on January 18 outlining 15 bills that were approved by the committee to alleviate some of the current regulatory burdens. If eventu- ally passed by the U.S. House of Representatives and the U.S. Senate, even in amended form, numerous provisions of the Dodd- Frank Wall Street Reform and Consumer Protection Act will unravel. The biggest contender in this area is H.R. 10, the Financial CHOICE Act, which despite last year's demise of the original bill on the Senate floor, will continue to exist in the background as pieces of this legislation reappear in smaller bills. π H.R. 1153, the Mortgage Choice Act of 2017 This Act was passed on February 8, directing the CFPB to amend the Qualified Mortgage Rule (QM) under Dodd-Frank, specifically adjusting point and fee calculations that fall within the three percent cap for hazard insur - ance and affiliated title insurance charges. The goal is to ensure that low-to-moderate income borrow- ers are not adversely selected out of QM eligibility when smaller loan amounts skew allowable fees under the cap. Lenders would responsively need to modify data and calculations used to deter - mine QM eligibility, as well as update Loan Estimate and Closing Disclosure calculations. Implementation of rules under the Mortgage Choice Act or any of Survival of the Fittest As the industry enters post-crisis mode, there's a new phase of operational disruption on the horizon—deregulation. By Jane Mason

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