Homebuilders use the term “structural integrity” to describe a home’s ability to support its own weight. As time and the elements besiege the home with the agents of decay, will the home still stand? Homes with good structural integrity will; homes built on weak foundations and cheap materials won’t. Poor structural integrity compromises the entire structure, not to mention the people living within.
Compliance is to mortgage servicers what structural integrity is to homes. Without a compliant foundation, servicers’ integrity is thrown into doubt, and repairing the problem can happen only at great expense. Particularly in the case of subservicers, noncompliance endangers the homeowners who rely on them for comfort and safety in their homes, and the lenders who rely on them for healthy, revenue-generating portfolios.
Last year, the Consumer Financial Protection Bureau (CFPB) announced temporary flexibilities for mortgage servicers due to unprecedented volumes. According to data from Freddie Mac, by May 2020, COVID-19 had sent 4 million mortgages into forbearance. That represented 8% of all mortgages and totaled more than $1 trillion in debt. In response, the CFPB issued a series of policy statements indicating temporary flexibilities regarding certain regulatory filings and compliance with consumer financial laws and regulations. Between March and June 2020, the Bureau released seven separate statements allowing leniency in a number of areas, including quarterly reporting, credit reporting, billing error resolution timeframes, examinations and supervisory activities, and more.
These statements indicated that, if they had to, regulated financial institutions (including mortgage servicers) could relax their compliance practices to keep up with the rising tide of delinquencies and forbearances across the financial industry. For servicers who didn’t have disaster protocols in place, that came as a godsend — but this was not the case for TMS Subservicing.
We never relaxed our internal compliance standards, and we never went down in any flood. In fact, 2020 was a year of success for TMS. In this article, we explore the philosophical and structural underpinnings of our compliance team’s 3 Lines of Defense (3LOD), and why compliance integrity has never been more urgent.
Culture of Compliance, Culture of Care
Yes, TMS is a fast-growing disruptor, having become a Top 10 Subservicer in less than 10 years. But that doesn’t mean we’re the wild wild west. Quite the opposite. While TMS Subservicing has existed for seven years, our compliance team goes back decades. Each of the team members devoted to our 3LOD has a mean experience of more than 10 years: 13 years for Servicing Risk, 13.5 years for Compliance Functions, and 11 years for Internal Audit. The senior leaders in our 3LOD have, on average, more than 20 years of experience.
Because our teams are so steeped in the industry, they know what true disruption is…and isn’t. True disruption doesn’t mean throwing out the rulebook. No matter how much we change the game, the overarching rules remain the same; the CFPB holds us to the same standards as all mortgage servicers. So, TMS didn’t throw out the rulebook — we threw out the playbook.
TMS Subservicing is fortified by a compliance team that, unlike the adversarial unit it comprises at other organizations, fuels all of our innovation. Through our 3LOD — Business Unit Risk Management (including Quality Assurance), Compliance Testing and Monitoring, and Internal Audit — our compliance team collaborates with the entire business, fostering a sense of unity between innovators and regulators. It’s a sacred bond, one that, pandemic or no pandemic, we’re unwilling to compromise.
Line #1: Business Unit Risk Management
- Establishes Quality Assurance in each line of business
- Performs regular testing, monitoring, and reporting to identify and eradicate concerns
- Acts as an early-stage risk manager, rooting out bad seeds before they grow into weeds
Line #2: Compliance & Monitoring
- Oversees Change Management
- Monitors policy changes
- Communicates protocol adjustments with all lines of business
- Oversees change implementation
- Compliance SWAT Testing Team reinforces strengths and mitigates weaknesses
Line #3: Internal Audit
- Mimics an external auditor, challenging the effectiveness of all company processes and controls
- Uses a rigorous four-step process: scheduling, letter of engagement, onsite review, follow-up meetings
- Identifies areas of improvement and outlines potential remediation activities
But we take it even further. In addition to a Culture of Compliance, we strive for a Culture of Care. Understanding the letter of the law is one thing; understanding the impact of the law on the customer experience is another. So, we don’t merely follow the rules, we merge our execution of the rules with our Core Values to deliver a top-notch customer experience. It is these principles by which we have achieved a 92% first-call resolution rate, a 98% customer satisfaction rate, and an 83% Net Promoter Score.
A compliant organization follows the rules in a dry, rote way. Check the box and move on. A caring organization follows the rules in a warm, human way. We make sure our team members, our customers, and our clients understand the “why” behind what we do. TMS goes that extra mile, and gives all the best of compliance and compassion.
Since the dawn of TMS Subservicing, we have consistently set the standard for loan servicing compliance, earning FNMA STAR accreditation, attaining a Platinum GNMA Issuer Operational Performance Profile (IOPP) rating, and becoming a Tier I FHA Subservicer (FHA TRSII Scorecard). One independent AML/BSA audit specially cited TMS for having one of the best compliance programs in the industry for a servicer of our size.
That’s always good. But as we get deeper and deeper in 2021, it’s downright essential.
“Unprepared is Unacceptable”
In May 2020, the CFPB declared leniency. By March 31, 2021, they’d changed their tune. In the interim, election season came and went, COVID-19 vaccines began to make the rounds, and a new Presidential administration assumed power. Where the previous administration had adopted a lenient stance toward servicers struggling to keep up, the new administration felt differently.
“Unprepared is unacceptable,” warned a new CFPB bulletin. “There is a tidal wave of distressed homeowners who will need help from their mortgage servicers in the coming months…There is no time to waste, and no excuse for inaction.” The stats told a scary story: 2.7 million borrowers still in forbearance, 2.1 of which were 90+ days delinquent; 242,000 mortgages not in forbearance that were 90+ days delinquent; 1.7 million borrowers scheduled to exit forbearance programs starting in September. A tidal wave indeed — and, with it, the resumption of strict compliance guidelines.
None of this surprised or worried us. Not even close. Since we never relaxed any of our internal compliance standards, we didn’t need to make up for lost time. Our internal guidance was simple: Keep doing what we’ve been doing for seven strong years.
Compliance in 2021 & Beyond
This year, the CFPB has promised to evaluate mortgage servicers by several major criteria:
- Being Proactive
- Working with Customers
- Addressing Language Concerns
- Evaluating Income Fairly
- Handling Inquiries Promptly
- Preventing Avoidable Foreclosures
Our clients are confident that TMS Subservicing checks all of these boxes. Our policies and procedures are tried and true, and our processes are proven. Throughout a trying 2020, we consistently reached out to customers before issues materialized, we collaborated with them to find the best loss mitigation steps based on their unique situations (when loss mitigation was necessary), our hold times were much shorter than our subservicing peers, and we kept forbearances and delinquencies below the industry average.
If they stay true to their word, the CFPB will come knocking on the doors of many mortgage servicers this year. They’ll turn over every stone they can, and if they don’t like what they see, they’ll take punitive action. TMS is prepared and has been. We’ve held true to our Core Values and personal compliance standards since our inception, pandemic or no pandemic. We’re as nimble today as we’ve ever been. Hurricanes in the form of pandemics and scrupulous regulatory bodies may blow, but our foundation is sound. Our integrity is never in doubt.