PERSON OF THE WEEK: Jim Micali is chief operating officer for LERETA, a provider of tax reporting solutions and data to the mortgage servicing industry. MortgageOrb recently interviewed Micali to get his view on whether the recent increase in mortgage servicing rights transactions is creating challenges for servicers and what they can do to meet these challenges.
Q: Is increased portfolio acquisition activity concerning?
Micali: Not necessarily. However, increased activity will exacerbate several existing challenges facing mortgage servicers today, including incomplete/inaccurate escrow data, paying taxes appropriately in advance of the transfer, and inefficient cancellation/transfer of escrow accounts, both of which often result in escalated consumer complaints.
Q: How can servicers mitigate these challenges?
Micali: The Consumer Financial Protection Bureau has made it very clear that servicers have the responsibility to perform the necessary analysis prior to or immediately after boarding a loan transfer file to ensure there is no disruption in service or impact to the customer due to incorrect or incomplete data. It is holding servicers accountable not just for their own actions, but also for those of the prior servicers, as well. Servicers can implement the proper controls for both outbound and inbound loan transfers to ensure accurate escrow data (i.e., tax agency(s), parcel IDs, correct tax installment due dates, next due amount, mapping of all of the pertinent tax lines, etc.) is loaded to the new servicing system.
Additionally, purchasers need to do a better job of requiring prior servicers to procure and pay all real estate taxes 30 days out prior to transfer. Furthermore, all servicers should consider changing this typical 30-day requirement to at least 31 days, covering the full month for those with 31 days. This will reduce borrower calls and complaints regarding tax payments and potential delinquent taxes.
Finally, auditors have increased their scrutiny over the loan cancellation process to ensure the prior servicer isn’t still requesting tax bills and that they or their vendors are communicating with the agency to get their name off the tax rolls as the agent of record. Historically, the new servicer waits to transfer escrow account responsibility during the next tax bill request cycle. Alternatively, servicers can take a more active approach and submit recurring cancellation reports to taxing authorities. New Jersey and New York have gone so far as to establish formal ME2 and 953 submission processes, respectively.
Q: What is your outlook for the mortgage industry in 2017?
Micali: The Mortgage Bankers Association has forecasted a 15% reduction in mortgage originations for 2017. This may result in mortgage lenders turning even more to loan acquisitions to grow their portfolios.
Q: Were you really a rocket scientist?
Micali: Not quite! However, in my earlier engineer career, I did work on advanced electromagnetic guns (where I was able to propel a 1 gram projectile slightly better than 6 km/s) and laser technologies for the Departments of Defense & Energy (See Radiation beam calorimetric power measurement system patent US 5156459 A).
Q: How does your engineering training apply to managing financial services operations?
Micali: In engineering research and development, you learn to analyze an issue, hypothesize potential causes, design new ways to solve the challenge, and then go about testing and adjusting until solved. My transition from engineering to operations management was greatly simplified by the direct applicability of this engineering cycle to process management and continuous improvement.
Throughout all of my operations management experiences, including today at LERETA, this analytical approach to solving tangible business issues has served our customers well as we design and implement robust, consistent processes and controls.