Compliance is often thought of as the domain of originators and closers, with the reasoning that if the loan is compliant at underwriting, the servicing department should have little to worry about. Unfortunately, this is not necessarily the case.
The reality is that servicers have always had to comply with regulations and investor guidelines in their day-today operations. Everything a servicer does--posting payments, performing escrow analysis, reporting mortgage interest and loss-mitigation efforts--must be performed within the established regulations and guidelines.
Performing these functions with an efficient mortgage loan servicing system can ease the compliance burden. With the high volume of defaults leading to foreclosure and the pressure to modify more loans, servicers are now running into compliance issues that have traditionally been the responsibility of originators.
Servicers today have the added responsibility of knowing and complying with regulations and guidelines that are changing daily due to the government's efforts to reduce foreclosures and keep borrowers in their homes. The primary purpose of compliance is the one most people are familiar with--the use of procedures and requirements to ensure all rules and regulations are being followed. The second purpose of compliance is to reduce operational risk and ensure business continuity. A close partnership between servicers and their mortgage servicing technology provider ensures they can work together to achieve compliance goals.
The most significant compliance challenge for servicers in today's marketplace is the frequency with which regulatory changes are being pushed out. Compounding the challenge is the fact that servicing departments are often given little to no time to implement new policies and procedures.
For example, when the Obama administration announced the Home Affordable Modification Program (HAMP) in March 2009, servicers were expected to begin working with the program immediately and implement changes to their processes. Making matters more confusing, the agencies were still preparing the documentation for servicers when the program was announced, leaving many companies struggling to implement the modification program with few resources.
The good news is that servicers do have resources and tools available to them to assist in managing compliance on the servicing side. The first step is to understand which agencies and rules apply to each institution. Banks...