QM and CFPB Implications for Servicers
By Steven Horne, CEO and President, Wingspan Portfolio Advisors
There are things we know about the changes CFPB is bringing to mortgage servicing, but there are probably more things we don’t know – which will keep the discussions lively in Mortgage Compliance Magazine for at least the next several years. As more of the fine points are sorted out, there are likely to be unintended consequences coming to light, since they inevitably result when regulatory change of this scale occurs. Among the things we know: the CFPB will be reacting to borrower and consumer advocate input as it addresses perceived transgressions, and this is where investors and servicers should be focused.
What is most likely to be a lightning rod for negative attention toward servicers? Response to borrower inquiries is a ready answer, and particularly when there is a problem with their loans. Under CFPB, primary servicers are responsible for offering a single point of contact and prompt response to calls and questions, but this is easier said than done. Massive systemic change involving layers of technology can be involved with making that happen on problem loans. Outsourcing problem loan handling to a transparent expert partner can be the solution, but selection has to be a careful and thorough process.
On the front end, originators are charged with negotiating the line between strict QM interpretations and accusations of limiting credit availability. Most agree that QM loans will be vanilla in the extreme, and many lenders are planning non-QM strategies for portfolio lending and RMBS execution (if investors can be found on a large scale). Smaller lenders are also making non-QM plans in order to cater to their core customers, and they could be damaged in a number of ways if they don’t. Neighborhood community banks and credit unions endure by treating customers with reasonable rates and high customer service. Can they survive by limiting themselves to QM loans, leaving their customers open to wooing by the big institutions with non-QM programs subsidized by multiple business lines? Mid-tier lenders are in the same boat, and just as a number of them have started to service their own loans in order to control their own destinies better, they are going to have to deliver non-QM loan programs to a greater or lesser degree. To do otherwise would result in one of those unintended consequences – that of taking many of the competitive forces away from the front end of the business.
Lumping these two thoughts together – keeping attentive to borrower needs in servicing as well as in origination – we see a common theme, and that is the need for high-touch, high quality borrower contact and relationship building capabilities. Having it in place for borrowers experiencing difficulty makes those borrowers far less likely to complain to CFPB that no one is helping them. Having it available for those new to loan servicing gives them the confidence to serve their constituents better by offering non-QM products, as they know they are ready in case problems arise. The win for investors is being able to bring their capital back to the RMBS market and know there is an expert ready and able to handle problem loans compliantly, with transparency, skill, and a demonstrable track record.
In the new regulatory environment, audits and examinations prompted by consumer complaint patterns are going to be more a part of the business than ever before. Though we do not yet know what the penalties will be like for non-compliance, we know that they will be considerable once CFPB rules are fully implemented and enforced. As an industry, we are past the era when mainstream lenders can be all things to all people. In the new age, they will come to rely on a small and very well-equipped group of outsources that are specialists in high-touch – and who can keep the new 800 lb. gorilla calm in the process.
Steven Horne is CEO and president of Wingspan Portfolio Advisors, a Dallas-based diversified component services provider he founded in 2008. He has pioneered a number of concepts and strategies used in Wingspan’s methodology for converting defaulted loans into re-performing assets. In 2013, he was an Ernst & Young Entrepreneur of the Year Finalist, and was named Entrepreneur of the Year by the Frisco, Texas Chamber of Commerce. He received his J.D. from George Washington University and has over 25 years of experience in mortgage servicing.