The stakes continue to rise for mortgage lenders and servicers as state attorneys general and state financial services regulators step up their enforcement actions. Mortgage lenders and servicers have dedicated significant resources to compliance over the past several years. Although federal enforcement actions may eventually decrease as the Trump administration pledges to reduce federal regulation, institutions should remain vigilant with respect to compliance risk as state attorneys general and state financial services regulators are already stepping up their enforcement of both federal and state consumer financial protection laws to more than offset the expected federal decrease. Examples include recent Multi-State Mortgage Committee (MMC), California Department of Business Oversight, and New York State Department of Financial Services Consent Orders against several large mortgage banks. These state regulators will likely bring actions against mortgage lenders and servicers to enforce state laws that are not preempted, and that go “above and beyond” or are more stringent than similar federal laws. As institutions shift their focus from federal laws to state laws, they face operational and compliance challenges.

Challenges and Issues Facing Mortgage Lenders and Servicers

Guidehouse has worked with banks and nonbanks of all sizes and complexity. Generally, mortgage lenders’ and servicers’ policies, procedures, processes, and systems appear to take into account federal laws; however, they are struggling with updating these to comply with each separate state-specific law. While there are frequently an unwieldy number of state laws, Guidehouse has noted five recurring areas where mortgage lenders and servicers are struggling as they operationalize these state specific nuances.

Five Recurring Challenges

1. Disclosures
   •  Mortgage lenders must disclose closing costs and the related terms and conditions in accordance with state specific requirements / forms.
2. Loss Mitigation
   • Mortgage servicers must place foreclosure activity on hold in certain states within different timeframes depending on whether the borrower submits a complete or incomplete loss mitigation application package and when the borrower submits that package
   • Mortgage servicers must include certain state-specific content on their acknowledgement letters, denial notices, and prominent links
   • Mortgage servicers must consider various state-specific timing requirements. This] includes timing requirements related to initial contact and due diligence as well as appeal requirements among many others that vary from state to state
3. Foreclosures
   •  Mortgage servicers must include certain state-specific content on their Notices of Sale.
   • Mortgage servicers must take into account various state-specific timing requirements for these notices.
4. Fees and costs
   •  Mortgage lenders and servicers must take into consideration state laws that may limit the amount of fees they can charge borrowers (e.g., closing costs, attorney’s fees).
5. Servicing transfers
   •  Mortgage servicers must include certain state-specific content on their Hello and Goodbye letters.
   • Mortgage servicers must consider various state-specific timing requirements for these servicing transfers notices as well as Requests for Information.