The “Five C’s” that challenge mortgage servicers: Compliance

David Officer, VP at SAP Fioneer and Rob Lux, CEO of Ranieri Solutions, review the challenges servicers face and how they can be addressed with Cloud for Mortgage.

The second challenge: Compliance with rapidly evolving federal, state, and local laws and agency regulations

David Officer — In our previous article we introduced the “Five C’s” that challenge mortgage servicers. These are the critical and sometimes competing priorities of:

• Anticipating customer needs and providing a digital experience that enables self-service
• Ensuring compliance with evolving federal, state, and local laws and agency regulations
• Defending against new and emerging risks in cybersecurity
• Customizing services to their clients’ unique needs and preferences
• Controlling costs while addressing all of the above

This article will focus on the second C: Compliance with regulations. SAP Fioneer is serving the needs of banks and mortgage servicers globally and has partnered with Ranieri Solutions to assure we address federal state and local agency regulations appropriately.

Rob Lux — Mortgage Servicing is a highly regulated businesses in the world. There are over a hundred agencies and authorities that have implemented over 10,000 of regulatory compliance rules and there are nearly one thousand new regulations released each year. Mortgage servicers are expected to precisely follow these rules or risk severe fines and penalties.  Attempting to do so with aged technology puts servicers at risk for compliance violations including significant fines and penalties.

Cloud for Mortgage (C4M) enables mortgage servicers to remain compliant with the rapidly changing regulatory environment. With legacy systems, servicers are forced to cobble together workarounds outside of their core servicing system because those systems are built on legacy technology that is difficult to modify. Cloud for Mortgage is built on modern technology and is extremely configurable and flexible, which allows servicers using C4M to remain compliant with minimum effort and cost.

Mortgage legislative landscape

Mortgage servicers interact with a myriad of regulators such as the Federal Reserve, Federal Home Loan Banks (FHLB’s), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), Fannie Mae, Freddie Mac, Federal Home Finance Agency (FHFA), Department of Housing and Urban Development (HUD), Federal Housing Authority (FHA), Department of Veterans Affairs (VA), Ginnie Mae, 56 State Attorneys General, and various State Housing Authorities.

These entities have created over 10,500 rules that impact the mortgage industry and continue to create rules that servicers must adhere to. Prior to the pandemic, there were an average of about 250 new regulations per year.  That rate climbed to nearly 1,000 changes per year during the pandemic and that annual rate has continued.

Some examples of rules include the Fair Debt Collection Practices Act (FDCPA), Real Estate Settlement Procedures Act (RESPA/Reg X), Fair Lending Laws, Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Equal Credit Opportunity Act (ECOA), and Truth in Lending Act (TILA/Reg Z). There were also many pandemic era rules and programs established, such as CARES and Homeowners Assistance Fund (HAF) as well as state and local laws that added to the complexity.

These rules are designed to protect consumers from unfair, deceptive, or abusive practices, which is an admirable goal. However, given the large number of different agencies involved and the extensive number of regulations, it is difficult for servicers to interpret the sometimes vague, ambiguous, and conflicting rules and their legacy technology was developed in a much simpler time in terms of regulatory oversight. Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit said “…when it comes to regulatory agencies, working together is increasingly difficult. I’m not just talking about differences of opinion and priorities, which certainly exist. I’m talking more about the bureaucracy’s enormous growth, which has created a dangerous system of confusing and contradictory mandates. Put simply, Washington, D.C. is tying us in ‘regulatory knots.’ As these knots grow tighter, they restrict our industry and the millions of people we serve. They’re the real victims here—and they’re who we are trying to help.”

Challenges implementing the rules

In addition to interpreting the conflicting rules, the rules many times have aggressive implementation timelines, especially during emergencies such as the COVID pandemic. One example is the FHA Payment Supplement program that required significant time to implement in legacy systems. By contrast in Cloud for Mortgage, this program only required 45 calendar days from the time of announcement to implementation. Speed is critical when deploying new regulations into core servicing platforms and that requires modern technology.

Another example is the recently introduced Department of Veterans Affairs (VA) Servicing Purchase (VASP) program. A VA press release said the program will be available to all 40,000 veterans beginning on May 31.  However, on May 3 the Mortgage Bankers Association (MBA) and Housing Policy Council (HPC) sent a letter that servicers need at least six months more to deploy the programs changes and cited their technology as a limiting factor. This illustrates the challenge of keeping compliant with regulatory changes while utilizing older technology systems that are difficult to update, thus extending implementation timelines for an important program meant to provide assistance for our country’s veterans.

Challenges maintaining evidence of compliance with the rules

Further complicating matters, to comply with all the rules, servicers must maintain scrupulous records for each mortgage transaction and borrower interaction. They must provide timely and accurate information to borrowers and quickly respond to their calls and complaints. They must also be able to respond to audits from the various agencies. This currently requires significant staff and generates work for servicers that leads to higher costs to both the servicer and consumer.

Commenting on the increasing regulatory requirements and heavy reliance on manual labor, Chase CEO Jamie Dimon stated in a Bloomberg interview that “…some of these community banks now have more compliance people than loan officers.”

Like community bankers, mortgage servicers are attempting to cope with the ever-expanding regulatory rules. They need to learn of new rules, interpret the rules, and implement them in abbreviated timeframes with limited staff.  This is especially challenging since mortgage servicing systems were built in the last century using COBOL with VSAM files and run on mainframes.  These systems are notoriously difficult to update, which causes delays in implementing new rules.

These delays require servicers to implement rules changes outside of their core servicing system and either rely on third party applications or build their own workarounds using spreadsheets, robotic process automation (RPA) tools, or other “surround-ware” solutions. Data and other records such as documents and images are stored in multiple disparate systems outside of the core servicing system, making it difficult to respond to borrower questions and regulator audits quickly and accurately. This can lead to major gaps in compliance and result in significant fines and penalties.

An Answer to These Challenges – Cloud for Mortgage Servicing

To address the challenges of regulatory compliance, mortgage servicers need a modern servicing system that is able to quickly adapt to regulatory changes and can perform all the necessary work within the core servicing platform.  The system needs to store all the relevant information, including data, documents, and transaction history, to quickly respond to borrower questions and complaints as well as address exams and audits.

SAP Fioneer and Ranieri Solutions are addressing this challenge with our Cloud for Mortgage (C4M) solution, leveraging cloud technology to consolidate the fragmented US mortgage industry and provide servicers, borrowers, and regulators with an intuitive interface to all the necessary data in one place.

SAP Fioneer has successfully deployed enterprise class mortgage solutions across the globe and has now partnered with Ranieri Solutions to develop a best-in-class mortgage solution for the US market.

Cloud for Mortgage offers all the capabilities required for mortgage servicers to remain compliant and it significantly reduces the manual labor required.  Compliance rules and regulations are added and updated in a fraction of the time that older systems require, through configuration rather than coding.  This eliminates the need to build workarounds or create off-board systems which create data silos strewn across the enterprise. All data and supporting documents are housed in the Cloud for Mortgage system and accessible in real-time for servicers. There is also the capability to permission examiners and auditors to self-serve. This reduces the back-and-forth requests for information and files, speeds up the process, and inspires confidence with regulators and agencies that the servicer is responsive to requests and is running and safe and sound operation.

SAP Fioneer and Ranieri Solutions collaborate to service the modern mortgage market

David Officer — SAP Fioneer launched in 2021 out of SAP to drive innovation in financial services. With decades of experience serving the largest global banks in the world, SAP (and now SAP Fioneer) has seen significant change in technologies, platforms and markets. One market that we’ve observed as ripe for innovation is the US mortgage business. The segment is a significant and important part of the US economy, heavily regulated, but with just a few dominant service providers that rely on legacy technologies.

To effectively address this market, we sought local expertise from our partner Ranieri Solutions to help build out the servicing solution of our C4M (Cloud for Mortgage) platform. Combining the capabilities of SAP’s proven platform, SAP Fioneer’s extensive financial services industry expertise, and Ranieri Solutions’ mortgage servicing experience, we are rapidly bringing to market a modern, scalable and reliable platform for a new industry.

Learn more about Cloud for Mortgage

Now more than ever, customers are at the core of any good system design. As Rob described above, a new platform (with new capabilities) enables a new approach to customer engagement that has the potential to change servicer, customer, and regulator relationships. The C4M platform is built to provide ease of use – a great user experience without sacrificing the requirement for compliance, controls, and risk management.

If you’d like to learn more about C4M, please don’t hesitate to reach out to [email protected] to discuss your business challenges, organize a demo, or schedule a call.

Find out more about Cloud for Mortgage.

About the authors

Rob Lux, CEO of Ranieri Solutions

Rob Lux is the CEO of Ranieri Solutions. He was previously COO for six years at Cenlar, the largest mortgage subservicer in the country, and CIO at Freddie Mac for seven years, where he built an award-winning technology team. He holds an MS in Technology Management from the University of Pennsylvania and a BS in Engineering from Drexel University.

David Officer, VP of North American Sales at SAP Fioneer

David Officer is the Head of Sales for SAP Fioneer’s North American division, where he oversees SaaS and software sales and overall customer success. Before SAP Fioneer, he was a client service lead at Ernst & Young and the Global Account Director of Financial Services at SAP. He completed his MBA at the University of Albany, SUNY.