Larger servicers face capacity issues and need outsource assistance, but rest of the industry will need help with the process requirements and planning
IRVINE, CA (February 19, 2013) – While all mortgage servicers are facing challenges in staying compliant with the industry’s many changing regulations, the nature of those challenges vary by the organization’s size and require varying solutions. This is according to Loren Morris, senior vice president, general counsel and chief compliance officer for Retreat Capital Management, a provider of advisory services and component servicing to the mortgage servicing industry.
The difficulties larger servicers tend to face are in the area of capacity, while small to midsize servicers are more likely to be challenged by their compliance processes. These challenges have become very apparent with the growing focus regulators have been placing on servicers’ operations. The most recent change results from the final announcement of CFPB servicing standards made on January 16, 2013 and will go into effect on January 10, 2014.
Servicers have been watching regulators intently, trying to predict changes and adapt accordingly. The larger servicers have greater resources for implementing compliant processes, but from all indications, says Morris, will need help in managing capacity issues. The rest, however, will likely encounter challenges in implementing compliant processes and are expected to need help from consultants and outsource providers if they hope to minimize difficulties.
“Over the past few years, larger servicers have grown accustomed to an increasing amount of attention being paid to their operations. They tend to implement best practices that cover the operations imposed by regulations, and they do so long before the regulation is enforced,” says Morris. “Small to midsize servicers, on the other hand, often find themselves reacting to new regulations when they’re enforced, so they tend to have difficulty developing and implementing the processes to ensure they’re compliant. They simply don’t have the budgets that larger servicers do to implement technologies and get permanent staff up to speed.”
Every servicer needs seasoned compliance experts to oversee their compliance programs and ensure that all staff members are properly trained and monitored, Morris explains, noting that that’s the only way they can ensure optimal efficiency. “The reality is that a lot of servicers are located in the same geographic area in the U.S., and because there are only so many subject matter experts in any given area, there’s much more demand than supply,” he says. “This is a considerable issue for the larger servicers, and one of the reasons they are turning to outsourcing.”
Morris finds that smaller and midsize servicers that try to implement regulatory changes hastily, without prior evaluation of how to best implement the changes, run the risk of establishing processes that are insufficient to protect them against noncompliance. In addition to constantly monitoring new and changing regulations, servicers should use a subject matter expert to interpret the meaning of each new regulation and analyze how each regulation applies to their particular organization’s current operations.
“There’s no such thing as a one-size-fits-all compliance program,” he says. “What works for one organization can be costly and ineffective for another. Large servicers have different pain points from their small to midsize counterparts, so it’s important to take an analytical viewpoint and examine how best to implement compliance measures before doing so. ”
About Retreat Capital Management
Founded in 2008, Retreat provides high level project management and consulting services to the mortgage industry, as well as component servicing. The company’s core competency is providing clients with end-to-end process improvement in all aspects of mortgage banking and servicing-related activities. Retreat specializes in operational risk management, compliance, loss mitigation and default management for companies off all sizes, and is certified by the GSEs. Retreat is headquartered in Irvine, CA, with offices in Irving, TX. It is a subsidiary of Allsec Technologies. For more information, please visit RetreatCapital.com.