Due to the mass amounts of paperwork and legislation, mortgages are a key part of the U.S. financial industry and its most complex feature as well. Here is a quick breakdown of two key compliance concerns related to servicing, one being “fair servicing” ECOA issues and the other being unfair practices under UDAAP:
The Challenge with Mortgage Servicing
Mortgage servicing was, until recent years, a responsibility managed by the bank consumers dealt with initially. As the financial industry grew larger, institutions realized they could sell mortgage-servicing rights to other companies who would do all of the administrative and processing work. The original banks would pay these new companies a fee to manage these accounts and would then have more time and resources for other endeavors. However, the sharing of responsibilities made it easy to unintentionally partake in unfair mortgage servicing practices.
Avoiding Accusations of Unfair Servicing
Many pieces of legislation and regulations have recently changed the servicing landscape, with the 2010 Dodd-Frank Act being the a notable change. The Dodd-Frank Act defines a servicing practice as “unfair” if:
- It causes or is likely to cause substantial injury to consumers;
- The injury is not reasonably avoidable by consumers; and
- The injury is not outweighed by benefits to consumers or competition.
Responsible servicers are familiar with the UDAAP regulations and have a strong compliance management system (CMS) that helps them steer clear of unfair practices.
How Fair Servicing Ties In
Under ECOA, there are certain prohibited factors that cannot play a role in any part of the loss mitigation process. Luckily, statistical analysis of loss mitigation servicing and the use of a fair lending CMS is one of the best ways to avoid discriminatory and unlawful behavior. Here are some of the top ways you can conduct a successful analysis by prohibited basis:
- Comparing the likelihood of an individual having a home retention outcome to the likelihood of a home liquidation outcome
- Examining the frequency of foreclosure versus non-foreclosure liquidations
- Considering the loan modification request denial rates
- Looking at the number of altered terms for loan modifications
- Reviewing loss mitigation processing times
While the steps above may not be simple, they are essential to ensuring that your organization does not take part run afoul of ECOA.
Don’t get caught in a compromising legal dispute around either UDAAP or ECOA that can hurt your institution and reputation—call ComplianceTech today at (202) 842-3800 to start monitoring your loan servicing business practices properly and maintain your honest lending reputation.