Up to 490,000 homeowners may be affected by inaccurate servicing records, a study from Nationwide Title Clearing (NTC) reveals.
Helping to drive the high error rate, the company says, are mistakes that occur when transferring mortgage servicing rights (MSRs). Due to a lack of compatibility, sometimes one servicer's system fails to properly transfer the required data to another servicer's system neatly when MSRs are acquired. Sometimes the data is transferred, but it doesn't end up in the proper data fields in the required documentation.
To help solve this problem, NTC is advocating for a quality control methodology with which to validate the data in servicing systems against collateral file or servicing file images. Not only would this prevent incorrect data from being passed on to the next servicer, it would also reduce the risk of noncompliance.
The Consumer Financial Protection Bureau (CFPB) recently issued a stern warning to servicers that they need to adhere to the bureau's new mortgage servicing rules when it comes to transferring MSRs. The CFPB says it is particularly concerned with what happens to loans that are in loss mitigation or under trial modification when they are transferred.
‘During a number of examinations, CFPB examiners determined that servicers had failed to properly identify loans that were in a trial or permanent modification with the prior servicer at time of transfer,’ the bureau states in an August bulletin. ‘In other exams, CFPB examiners found that servicers had failed to honor trial or permanent modification offers unless they could independently confirm that the prior servicer properly offered a modification or that the offered modification met investor criteria. In some of these instances, CFPB's examination determined that the transferee servicers did not obtain all of the information they needed from the transferor servicer.’
In an in-house study, NTC found that out of nearly 2.3 million servicing database records that were verified against the collateral file, 24,490 loans (1.07%) had significant discrepancies. That means that of the roughly 49 million outstanding residential mortgages, as many as 490,000 could be affected by faulty data.
‘These database inaccuracies might have represented 'acceptable risk' in times past – but in today's compliance-oriented landscape, such a high number of errors could bring increased scrutiny and penalties from CFPB regulators, not to mention putting a cloud on title and cause trouble for homeowners,’ says Michael O'Connell, chief operating officer of NTC, in a release.
NTC claims that it is the company's normal practice to compare the data it receives to the imaged copies in the original file. This way, if there is a discrepancy, it is resolved and the information passed to the next servicer is accurate.