Mortgage Servicing Quality Control
Notable Audit Findings: April – June 2017
Over 20,000 mortgage servicing Quality Control audit findings involving of over 1,800 separate and unique audit exceptions were cited during the second quarter of 2017. That data pool was analyzed to identify emerging trends and common findings. The following five audit findings were identified as being notable.
- Audit Finding: An outdated Form HUD-90035 is being mailed to borrowers.
When a Borrower expresses an interest in participating in HUD’s Pre-Foreclosure Sale (PFS) program or has been identified by the Mortgagee as a qualified candidate for the PFS program, the mortgagee must mail Form HUD-90035, Information Sheet: Pre-Foreclosure Sale Procedure, which includes its toll-free or collect telephone number on the form.
The revision to Form HUD-90035 was described in FHA’s 30-Day Notice of Proposed Information Collection (Docket Number FR-5909-N33) published in the Federal Register on May 4, 2016. The revised form was posted on December 13th along with revisions to forms HUD-90041, HUD-90045, HUD-90051, and HUD-90052. The form revisions were also announced in FHA INFO #16-80 on December 30, 2016.
Since the effective date of the new Form HUD-90035 on December 30, 2016 when reviewing Pre-Foreclosure Sales, TENA encountered the use of the out dated form multiple times.
TENA Recommendation: Review your firm’s current HUD-90035 being sent to borrowers and ensure the new form with the expiration date of December 31, 2019 is being used. It is also recommended that you review forms HUD-90041, HUD-90045, HUD-90051, and HUD-90052 since they were updated in tandem with HUD-90035.
To ensure compliance review FHA SFHPH 4000.1 – III.A.2.l.(ii)(C)(1) and you can review all HUD forms on their Forms Resource page.
- Audit Finding: The Trial Period Plan agreement did not have an acceptance/rejection date on or before the first trial plan payment due date.
In August of 2016 FHA released Mortgagee Letter 2016-14: Updates to FHA’s Loss Mitigation Retention Options and Miscellaneous Mortgage Servicing Policy. Contained in the updates under the FHA-HAMP Trial Payment Plans it stated the following:
(iii) Start of Trial Payments
The Mortgagee must send the proposed TPP agreement to the Borrower at least 15 Days before the date the first trial payment is due with notification of an established deadline date for Borrower acceptance or rejection of the Trial Payment Plan Terms. The acceptance/rejection deadline date must be on or before the first trial payment due date.
Since the effective date of this requirement on December 1, 2016 TENA has encountered a steady climb of findings relating to the acceptance/rejection deadline provided to borrowers. In many cases TENA has observed the acceptance/rejection of the TPP agreement is a date that is past the date of the first trial payment due date resulting in a finding being cited.
TENA Recommendation: Analyze current Trial Period Plan agreement language to ensure your firm has established a deadline for the borrower to accept or reject the TPP prior to the first trial payment due date.
To ensure compliance review FHA SFHPH 4000.1 – III.A.2.k.(v)(F)(3)(b)(iii) and FHA Mortgagee Letter 2016-14.
- Audit Finding: There was no evidence in the servicing file that the credit reporting agencies were notified of the payoff with the information regularly furnished for the period in which the account was closed.
TENA initially recognized this as a top trending finding in the second quarter of 2016 and it lingers in our top findings reports. TENA continues to see inconsistency in the time frames for servicers when updating the credit bureaus upon the payoff of a loan. In many cases when TENA cites the finding it is on reports that are more than 60 days beyond the payoff itself.
TENA Recommendation: Ensure your organization has policies and procedures to promptly notify the consumer reporting agencies and that your application of the policy is consistent with what is stated. Periodically testing your procedures will help to identify the breakdown if one is occurring.
To ensure compliance review FCRA 15 U.S.C. § 1681s-2(a)(4).
- Audit Finding: The County shown in Mortgage Electronic Registration System (MERS) system does not match the subject property county shown on the security instrument.
An essential part of servicing is ensuring the data in your firm’s systems are correct. When the data is incorrect it can lead to problems down the road – especially when that data is being transferred or recorded in another system through an electronic transfer. When registering a loan in the MERS® System, a Member must validate that the data on the MERS® System matches its system of record. Validating the County where the property is located is a MERS® System field that must be validated. This month while reviewing newly boarded loans TENA observed an increase in findings relating to the County not matching the County listed on the security instrument in the file.
TENA Recommendation: Analyze current processes and procedures your firm has in place to ensure data integrity is accurate. Reviewing samples of newly boarded loans helps you to identify process breakdowns in data entry.
To ensure compliance review MERS Manual v34.0, Requirements: MERS System Data Integrity.
- Audit Finding: An initial privacy notice was not provided to the borrower which violates the Gramm-Leach-Bliley Act (GLBA).
TENA as part of its Servicing Transfer Area of Inquiry (AOI) reviews for an initial privacy notice being provided to a borrower in accordance with Gramm-Leach-Bliley Act. According to section §1016.4 Initial Privacy Notice to Consumers Required (12/21/11) of the Act, you must provide a clear and conspicuous notice that accurately reflects your firms privacy policies and practices to customers. A customer is defined as “an individual who becomes your customer, not later than when you establish a customer relationship…” Under this section there is a special rule for loans that indicates you establish a customer relationship with a consumer when you originate or acquire the servicing right to a loan to the consumer for personal, family, or household purposes. If you subsequently transfer the servicing rights to that loan to another financial institution, the customer relationship transfers with the servicing rights.
Within months of adding this requirement to its servicing transfer reviews, TENA registered an immediate impact on quarterly trends.
TENA Recommendation: Analyze current processes and procedures to ensure your firm has a process in place to send the necessary notices if the firm engages in loan transfer activities. Then establish procedures to clearly document in the system of record that the notice is sent to all new customers.
To ensure compliance review GLBA 12 C.F.R. § 1016.4(a)(1).
