Mortgage companies and other financial services entities should carefully heed messages provided by their regulatory agencies in three recently released reports. Specifically, on April 27, 2015, three working groups comprised of key representatives of various state mortgage and financial services regulatory agencies released annual reports relating to their activities. Specifically, the three working groups, the Multi-State Mortgage Committee (MMC), the State Coordinating Committee (SCC), and the Multi-State MSB Examination Task Force (MMET), each released reports regarding their operations and progress during 2014.
The MMC Report
The MMC Report reveals a considerable amount of information concerning the efforts of the state mortgage regulators towards supervision of non-depository originators and servicers. The report emphasizes the MMC’s coordination of examinations with the CFPB and specifically highlights the fact that examiners are moving towards a safety and soundness approach in their examinations. In the context of origination examinations, the MMC emphasizes its support of a comprehensive analysis of an originator’s entire loan portfolio by leveraging software for such analysis, rather than exclusively relying upon loan by loan file reviews. A comprehensive, software-based focus requires the regulatory agencies and their examiners to rely upon the integrity of data provided by originators; as a result, the integrity of the data provided by industry members is incredibly important. Fortunately, originators are in the best position to control the data that they produce relating to their origination activities, as opposed to servicers that inherit data in connection with the servicing transfer process.
With respect to the group’s origination examinations, members of the MMC suggested that industry members must improve their cooperation with examiners. The report suggests examination staff experienced significant delays because industry members did not demonstrate the appropriate sense of urgency relating to examination requests. The MMC report also states that inaccurate reporting information led to many significant findings in examinations. On a bright note, the report states that originators appear to be experiencing significantly less representation and warranty issues, thereby resulting in fewer potential loan repurchase demands.
Turning to mortgage servicers, the MMC Report places great emphasis on its examination of mortgage servicers and the challenges relating to those examinations. The Report explains that “[s]ervicing examinations were significantly extended due to consistent delays in receiving information.” It also declares that “[r]isk management and management control systems continued to be inadequate to handle the growth experienced.” On the whole, the MMC report expresses great concern regarding its mortgage servicer examinations, noting excessive violations of state and federal laws and finding deficient internal audits in a number of instances.
The SCC Report
The SCC conducted nine joint examinations of non-depository, multi-state companies during 2014. Of those nine joint examinations, six reviewed mortgage entities with origination and servicing functions. The remainder of the actions consists of a coordinated payday lending examination and two debt collection examinations. The SCC Report also promotes the group’s facilitation of the delivery of information between the CFPB and state regulatory agencies as well as the development of coordinated examination procedures.
The MMET Report
The MMET conducted 57 joint MSB examinations during 2014. The MMET also promoted its continued coordination with the Internal Revenue Service and the Financial Crimes Enforcement Network (FINCEN), while preparing for increased coordination efforts with the CFPB during 2015.
On the whole, each of these three annual reports provides significant insight into the processes of the groups and the overall direction of the examination efforts of regulatory agencies towards licensed non-depositories. Particularly for mortgage lenders and servicers, the insight gleaned from these reports should be put into practice with a goal being to improve overall examination processes.