Mortgage servicing transfers are all too common, but unfortunately, they remain freight with challenges. A transfer occurs when the mortgage owner sells the rights to service a loan to a different party or leases it out. The owner may even sell the mortgage outright as an asset. This entire process involves a lot of data transfer, exchange of information and documents, a shift in the communications plan, a change in servicing responsibilities, and much more. Instead of managing it in-house, it is often wiser to opt for mortgage transfer services if you want to streamline the whole thing.
Understanding the Role of Transfers in Today’s Mortgage Servicing Workflow
Servicing transfers are heavily regulated and come under the scrutiny of industry watchdogs because borrowers do not have a choice with regard to the transfer of servicing. To protect borrower interest and also to maintain ethics in a difficult time like the pandemic, organizations like the Consumer Financial Protection Bureau (CFPB) have come out with special guidance.
Specifically, Regulation X or the Real Estate Settlement Procedures Act must be considered when initiating transfers in your mortgage servicing workflow. This law places certain obligations on both the transferor and the transferee loan servicer. In a nutshell, it states that the transferer will undertake the timely transfer of all necessary data and ensure their accuracy. Meanwhile, the transferee must have policies in place to flag any discrepancy in the transfer process.
A mortgage servicer who fails to comply with CFPB guidelines had to pay a fine, making it important to take mortgage transfer services seriously. In a volatile market, where one may expect foreclosures, bankruptcy, and miscommunication to complicate matters, a partner that provides you with mortgage transfer services can help simplify operations and stay compliant.
What Are the Challenges of Servicing Transfer?
When transferring mortgage servicing rights (MSR), the owner may run into a number of challenges and risks:
1. The cumbersome process of moving data
A typical servicing transfer will involve the migration of hundreds and thousands of datasets between systems. However, this isn’t a simple move due to the presence of old silos. Servicing systems may not have the same data structures and fields, and either the transferee or the transferer could be relying on legacy spreadsheets.
How to overcome it: To overcome this challenge, both parties should have a servicing transfer plan in place, which includes the essential step of data transformation. You may also use specialized data management tools to complete the transformation, migration, and integration while assigning a unique account number to the borrower to prevent duplicates.
2. Process differences denting the borrower experience
Since the borrower does not have a say in the transfer of their loan, their experience is already at risk. When the handoff does not go smoothly, it further adds to the challenge. For example, if the transferer had an escrow cushion, but the transferee does not provide the same benefit, it negatively impacts the borrower’s experience.
How to overcome it: Communication is key when it comes to addressing this servicing transfer challenge. Both parties should undertake a thorough evaluation of their policies and procedures – with the help of a mortgage transfer services specialist – and communicate any upcoming change to the consumer.
3. The absence of loss mitigation measures
In scenarios involving default servicing, foreclosure, or bankruptcy, the loss mitigation process frequently gets interrupted during a transfer. Since the systems in place are not standardized, the transferee must pay extra attention and correctly stick to the payment/collection schedule under the agreement. Further, state-wise laws may influence the steps you need to take for mortgages involving bankruptcy.
How to overcome it: The best way to address this challenge is to work with a mortgage quality control partner that also offers mortgage transfer services. That way, you can outsource quality assurance of MSRs undergoing loss mitigation efforts without adding to your overheads. This also simplifies cross-state transfers that cut across regulatory lines.
4. Inadequate documentation and difficulties in audit
If a transfer involves loan modification, then both the transferor and transferee must get into a lot of paperwork. This challenge has been exacerbated by the COVID-19 pandemic, where widespread forbearance came into action to provide borrowers with some relief. If the forbearance happens verbally or through an informal agreement, it will cause hiccups in a servicing transfer.
How to overcome it: Cutting-edge technologies like optical character recognition (OCR) and AI chatbots can help address this. It will maintain a trail even of informal conversations and consolidate structured and unstructured data like screenshots or handwritten notes. AI can even automate document management to find errors, gaps, and duplication to streamline pre- and post-transfer audits.
Why You Need Data-Driven Mortgage Transfer Services
Today, mortgage servicing workflows are highly dynamic – with transfers on the rise along with regulatory expectations. By opting for data-driven services, you can:
- Assess servicing operations before a transfer, including a gap analysis
- Analyze data to find illogical values, exclusions, discrepancies, etc.
- Evaluate the transfer agreement for compliance
- Automate the monitoring of servicing transfers, such as automated notices, automated payment confirmations, etc.
- Strengthen pre- and post-transfer reviews to accommodate high-risk loans
- Streamline data management and borrower communication
Nexval’s mortgage servicing experts bring years of experience in handling mortgage servicing transfers. Our proprietary artificial intelligence tools simplify the data, information, and file transfer process, and keep borrowers informed of any change. Our purpose-built risk mitigation platform – Veritiq’s ARC (Audit, Risk Management, and Compliance) – is compliant with CFPB laws and the latest state and federal-level regulations.
By working with a data-driven mortgage transfer service provider, you can overcome the challenges of siloed-legacy processes and unlock newer opportunities from frictionless transfers of MSRs. Speak with our Tech Gurus to know how.