If your credit union sells mortgages to the secondary market, it needs a robust quality control (QC) process to avoid penalties and minimize the risk of mortgage buy-backs.
That's the word from Ent Federal Credit Union’s Jon Paukovich, vice president of lending, and Casey Perkins, director of collections. “The new servicer requirements are out so this will get even more intense,” Paukovich says.
He’s referring to the Dodd-Frank Wall Street Reform and Consumer Protection Act-imposed new requirements on mortgage servicers, which also gave the Consumer Financial Protection Bureau (CFPB) authority to write regulations addressing the mortgage servicing market.
In April, the CFPB outlined rules to address two underlying servicing problems uncovered during the financial crisis: the lack of transparency and lack of accountability. The CFPB plans to finalize the rules in January 2013.
To bring greater transparency to the servicing market, the CFPB is considering rules that mortgage servicers must provide:
► Regular statements with a breakdown of payments by principal, interest, fees, and escrow along with the amount and due date of the next payment;
► Disclosures before the interest rate changes on most adjustable-rate mortgages;
► Options for avoiding “force-placed” insurance; and
► Information about options to help delinquent homeowners avoid foreclosure.
Here’s what lenders can expect from the mortgage agencies in the area of mortgage audits, Paukovich says:
In particular, expect Fannie Mae to review mortgages with greater than 90% loan to value, high-risk borrowers, and cash-out refinancings. Credit unions also will need to verify members’ Social Security numbers, income, employment, property appraisals, and other factors.
The Federal Housing Administration is very risk-focused, Paukovich says. “They’re thinly capitalized, so they’re searching hard for risk.”
“Be proactive in loss mitigation,” Perkins adds. That could include contacting members whose payments are three days past due instead of waiting longer.
Ent Federal has created a mortgage review analyst position to manage the credit union’s QC process. “It’s too critical to not put full-time attention to this,” Paukovich says.