don’t punt on fair servicing · 2019-10-18 · 2019 user’s conference. fair servicing. don’t...

2019 User’s Conference

Don’t Punt on Fair Servicing

Curtis ManleyVP, Compliance Client Relationships


Fair Servicing

With new changes to HMDA and heavy focus on expanded data fields, possible exemptions to the changes, and discerning the meaning behind all the new data requirements, it can be easy to lose focus on an important, but often forgotten, Fair Lending concern –Fair Servicing.


Fair ServicingDon’t get blindsided by Fair Servicing issues within your Compliance Management System!Remember:

• The Equal Credit Opportunity Act (ECOA) states that is unlawful for any creditor to discriminate based on race, color, religion, national origin, age, sex, or marital status within ANY aspect of a credit transaction.

• Fair Housing laws prohibit considering race, color, national origin, religion, sex, familial status, or disability when applying for mortgage loans and also extend to servicing issues such as modifications, repayment plans, etc.

• UDAAP laws affect servicing primarily in the representation of ancillary products and services such as identity theft protection, credit life, or debt cancellation. Ensure customers receives the benefits of the services being paid for.


Fair Servicing• Like the origination process, the intent to discriminate

is not necessary to enforce violations of ECOA in the servicing process.

• Neutral or seemingly neutral business practices (think application of late fees, modification guidelines and processes, and credit reporting) can still present a Fair Lending violation if they cause a disproportionate negative impact to a protected group.


FROM THE COMMISSIONER’S OFFICE (CFPB)The CFPB examination manual lists the following of examples of how examiners identify disparate impact in servicing:

• Analysis of the distribution of protected class members in the pool of delinquent borrowers vs. the distribution of protected class members receiving a range of loss mitigation outcomes, including reinstatement, repayment plans, forbearance, loan modification, short sale, deed in lieu, and foreclosure;

• Analysis of processing times and loan modification attributes including interest rate, principal, and monthly payment reductions for protected class members when compared to non-protected class members and;

• Analysis of the representation of protected classes in the group of seriously delinquent borrowers vs. their representation among borrower who lose their homes to foreclosure.


IDENTIFYING RISK AREAS

• Identifying Risks is the first step in your institution’s Fair Servicing game preparation.

• When creating or revising your institution’s Risk Assessment – don’t skimp on Fair Servicing. Full attention and detail should be given to the different risk aspects of Fair Servicing.


GAME PLANNING FOR Fair Servicing Pay special attention to areas where levels of discretion exist:

• Underwriting of loan modifications– Is underwriting automated with objective criteria (represents a

lower risk)– Is underwriting manual? (higher risk)– Are acceptable exceptions to policies clearly delineated and

tracked? (higher risk)

• Waiver of fees (Prohibited basis groups might receive less fee waivers than others)

– Develop ways to track to ensure waivers are fair and equitable


PROTECT THE BLINDSIDE• Add-on products – ensuring customers

receive benefits of ancillary products and/or services. As well, ensure these types of products are not targeted to specific groups.

• Servicing transfers – transparency and timely disclosure to customers is key.

• Identification of loan in loss mitigation at the time of transfer is crucial to preventing borrower harm.


PROTECT THE BLINDSIDELanguage barriers – it is vital to know the demographics of the loan portfolio and how those demographics will be serviced:

• Identifying borrowers who may require non-English language assistance;

• Options for customer service calls in a language other than English;

• Depending on portfolio of non-English speaking customers, staffing service personnel to help in a language other than English; and

• Translations of English language documents to Limited English Proficiency (LEP) borrowers.


PROTECT THE BLINDSIDE• Late fee assessments – system

programming and testing. Consistency is crucial – but don’t be consistently bad.

• Credit reporting – servicing isn’t limited to Fair Lending laws. Understanding impacts of FCRA is of paramount importance.


THE PLAYBOOK

• Review CFPB ECOA Examination Manual and Interagency Fair Lending Exam Procedures and apply them within your CMS and risk assessments.

• Ensure servicing policies and procedures are clear, well written, comprehensive, and most importantly – neutral.


THE PLAYBOOK

Loss mitigation – test for disparate treatment and disparate impact in key areas such as:• Repayment Plans• Granting of Forbearance Plans• Loan Modifications• Short Sale• Deed In Lieu • Foreclosure


COMPLEXITIES OF THE Fair Servicing SCHEMEAnalysis can be challenging• Demographic information may not always be

available – especially with a non-originating servicer.

– While not perfect, proxy methods such as BISG Proxy can aid in solving this problem.

– Privileged self-testing can also be employed to derive demographic information.


COMPLEXITIES OF THE Fair Servicing SCHEME• Multiple decision points in the loss mitigation space

including approval and denial of modifications, interest rate reductions, repayment plans, etc. All present potential Fair Lending risk and make analysis a challenge. Document, document, document.


THE BEST OFFENSE IS A GOOD DEFENSE


THE BEST OFFENSE IS A GOOD DEFENSEProper controls are the best defense against Fair Servicing enforcement action:Preventative Controls – The defensive line of the compliance management system

• Management Oversight

• Policies and Procedures

• Training

• Systems – limitations on fee waivers, for example

• Robust change management processes prior to implementation or change of products and program


THE BEST OFFENSE IS A GOOD DEFENSEProper controls are the best defense against Fair Servicing enforcement action:Detective Controls – The defensive backfield of the compliance management system• Compliance monitoring to ensure preventative controls mentioned earlier

are in place and working effectively – think of these as the compliance linebackers.

• Internal audit processes to ensure Compliance processes are effective and working to identify issues – these are the safeties of the compliance management system

• Complaints Management and Feedback – the special teams of the compliance management system


CONCLUSIONFair Servicing is complex and covers a vast array of products and process. • Start with identifying risk areas unique to your organization.• Controls over discretion in the processes is of paramount

importance to making non-discriminatory decisions.• Utilize the three lines of defense just as you would in the

origination process to prevent, detect, and resolve possible compliance issues in the servicing space.

don’t punt on fair servicing · 2019-10-18 · 2019 user’s conference. fair servicing. don’t...

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