When It Comes To Mortgage Compliance, Every Detail Counts

BLOG VIEW: As compliance becomes more of a focus for lenders and servicers, they must review their business processes and policies to ensure they will not get slapped with any fines that could potentially damage their reputation or, worse yet, cost them the company.

One area that should not be overlooked is paying the property taxes. Aside from lenders and servicers having to incur fines, mismanaging these payments could result in a homeowner losing his home.

There are a few things servicers should be aware of when considering every aspect of their servicing portfolios, including the following:

Protect your lien/asset: The bottom line is if taxes are not paid, jurisdictions can take possession of a property and, unfortunately, evict the home owner. This is an obvious loss not only for the homeowner but also for the servicer, as the asset will be gone. Having expertise in working with local agencies is crucial.

Benefit from partnership: It is often helpful to partner with a knowledgeable third-party provider that understands the complexities of property taxes; is willing to act as a trustee and manage all the services regarding property tax collection and distribution; and that knows the different requirements, which can vary from state to state, county to county, and even municipality to municipality. Such a partnership will give servicers a layer of protection based on their partners’ tax issue expertise. Although you are ultimately responsible for the servicing of the loan, being able to mitigate liability is beneficial.

Create a better customer experience: At the Mortgage Bankers Association’s recent servicing conference held in Orlando, Fla., representatives from government agencies, including the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Housing and Urban Development, said they want to ensure that lenders and servicers are doing all they can to keep homeowners in their homes. The additional regulatory scrutiny on servicing means the industry has to do a better job of effectively communicating with consumers and make sure their concerns are addressed. This includes addressing all of the property tax issues. If the taxes do not get paid or if there is an issue with an escrow account, a servicer needs to rectify the problem quickly.

Know who paid what: There have been several instances in which loans were sold and the seller did not pay the property taxes and later says they thought the purchaser would pay the taxes. This creates a stressful situation for the consumer, who then have to determine if they have money in their escrow account, and if they do – can they get access to that money from the escrow account to pay the taxes, or if they need to pay the taxes directly, etc. This is a nightmare for consumers and could become a nightmare for servicers should consumers lodge complaints with the CFPB. Develop a specific course of action to ensure that all fees are paid before the loan is transferred.

Servicers cannot expect to be successful today using the same strategies that brought success five years ago. The landscape has changed, and increased regulation is affecting how the mortgage industry does business – including servicing. In order to avoid non-compliance with federal regulations and unfavorable reviews from consumers, as well as to protect their assets, servicers must pay close attention to each and every detail of their portfolios – especially how the property taxes are paid.

John Walsh is CEO of Covina, Calif.-based LERETA, a national provider of property tax and flood hazard data for the real estate industry.

Request A Quote Contact Us