Servicing & Operational Risk Assessments for Mortgage Servicers
SCA News: One of the great things about SCA is the range of issues we get to see, and the wealth of knowledge we get to tap into while working with dozens of clients on a monthly basis. Today, we'll share some important insight and information about servicing and operational risk assessments.
By Bill Dolan & Dave Miner:
As the actor-comedian Rodney Dangerfield always said, “I get no respect!!!”
The same holds true for how many servicing departments and their operations are perceived. This is of course until the refi markets fade away and production falls off to a purchase-only cycle. Meanwhile, service fee and ancillary income again play a key role in keeping many shops afloat during the downturn. However, not many take advantage or realize just what servicing can accomplish and how critical servicing is to your bottom-line and repeat business, whether a bank or credit union.
There is no better time than now to take a serious look at your mortgage servicing operation and weigh the benefits of creating a long-term sizeable stream derived from servicing fee income. To do so, you need to know how to grow this line of business while maintaining a low cost to service.
What does it cost you to service a loan annually? Do you know? Really? What is the annual service fee income derived from your mortgage portfolio? Is it enough to offset your servicing expenses and still increase profitability to your bottom-line? Do you know? For many, their honest response is “not a clue.”
Within loan administration, several functions of servicing are performed on a daily basis: from the initial onset of loan boarding to payment processing, customer service, investor accounting and reporting, escrow oversight, ARM analysis, and when necessary, all phases of default management including property inspections, foreclosures and payoffs are performed by staff until final discharge is reached and the list could go on.
How does each of these touch points function and more importantly, how are they managed?
Today, many organizations are considering outsourcing solutions. This also includes performing individual functions such as handling hazard insurance or tax realty services as well as contemplating a move to a sub-servicer which creates a greater due diligence for you. Is the vendor or sub-servicer providing the services you need or are they guessing as to what they think you need? How often are you and your vendor communicating with one another (daily, weekly, monthly) and when required, are they implementing the necessary changes that YOU want?
The same holds true as it relates to your HELOC portfolios and how they are being serviced. Though not requiring as many touch points as the mortgage servicing portfolio, HELOCS can still maintain the same levels of risk and exposure to your organization as mortgages.
Far more times than not, financial institutions place less focus and significance on their servicing departments and feel that regulators and examiners will overlook the technical compliance issues surrounding the areas associated with Truth-in-Lending, RESPA and Fair Lending. Institutions with mortgage servicing operations must recognize the importance of emerging risk and must be proactive in assessing their effectiveness and sustainability of controls, policies and procedures governing their mortgage servicing functions.
As a prerequisite, you as a mortgage banker must have an effective risk management program which must encompass all aspects of loan servicing, loss mitigation and foreclosure activities with particular emphasis on those actions performed by third parties on behalf of your organization.
Be aware that examiners now include loan servicing and loss mitigation in their fair lending exams.
Having SCA perform a comprehensive servicing and operational risk assessment will identify and uncover potential exposure, and direct resources to make the appropriate adjustments to your mortgage servicing risk assessment program, that are based on industry standards and best practices.
From SCA’s results, we can work together with your staff to develop specific action plans for program improvements prior to both internal audits and external exams. By performing a robust servicing operational risk assessment and developing a continuous improvement model within servicing, your institution will be far better positioned to avoid regulatory and reputational risk while protecting the rights and interests of your mortgagors. Spillane Consulting Associates has a seasoned industry team of mortgage consultants with extensive servicing knowledge that will work with your management and staff to assess your current servicing operation, streamline process flows, improve risk management practices, enhance your systems utilization and provide productive and cost-effective operational enhancements.
Furthermore, SCA also conducts third-party service provider reviews to ensure that you are obtaining the highest possible service levels reviews and client support from your vendors. If you are contemplating outsourcing the servicing function in whole or in part, SCA can work with you to design, develop and elicit the solutions you are looking for and the evaluation criteria required for the vendor prospect to be assessed on.
Spillane Consulting Associates has served the residential mortgage lending business since 1991. We have specialized in mortgage banking consulting services and provided quality control reviews, risk management and process consulting and employee training to credit unions, community banks and non-depository institutions. We are a thought leader on the strategic growth of residential mortgage lending. You can learn more by visiting our website, or scheduling a meeting with me or one of my colleagues.
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