The Money Source’s Shayna Arrington on CFPB, Regulation X

Jordan White: Hello, HousingWire listeners. My name is Jordan White, and I’m an Assistant Editor with HousingWire. Today, I’m joined with Shayna Arrington, Chief Compliance Officer at The Money Source. In this episode of “HousingWire Daily,” we’ll be discussing the current pain points services are facing from a risk and compliance perspective, and how servicers can overcome those challenges to help their customers. It’s so nice to have you as a guest today, Shayna. Thank you for joining us on “HousingWire Daily.”

Shayna Arrington: Thanks for having me today.

Jordan White: Before we dive into today’s topic, can you tell us a little bit more about you? I know you oversee compliance across all business channels at TMS, but how did you get to where you are today?

Shayna Arrington: How does anyone get into mortgage? I’m not sure anyone grows up thinking they want to be a mortgage professional, yet we’re all here and it’s a great place to be. Started my career in Washington, D.C. working for the federal government. I worked for what I like to call the alphabet soup of government regulatory agencies within financial services. So I worked at FINRA, the Financial Industry Regulatory Authority, FBI and their financial crime section, the SEC, Securities and Exchange Commission, HUD, Housing and Urban Development, and then the Department of Justice. And went into government service, I went into private practice, and I worked for a law firm within the mortgage banking space, where my clients were primarily lenders, servicers, and vendors within the industry. And then about five years ago, I went in-house to TMS as their Chief Compliance Officer, and I’ve never looked back. It’s the most fun job I’ve ever had.

Jordan White: Thank you for letting us learn more about you. Let’s move on to today’s main conversation. To start off today’s interview, I’d like to focus on the MBA event that was held two weeks ago focusing on regulatory compliance. What did you hear about the hot topics services are currently facing?

Shayna Arrington: So this was the MBA’s first in-person conference since the pandemic, and it was great to be there in person. What I found interesting about it is that pre-COVID, you might have had one, maybe two sessions on mortgage servicing. A lot of the regulatory compliance conversations in the industry were really heavily focused on originations, but pandemic really shifted the spotlight onto servicing, as servicers were the ones that are working with large volumes of homeowners who’ve been adversely impacted by COVID-19 to try to get those borrowers back on track, which can be an incredibly complex and time-consuming process. If you had asked me a couple weeks ago, what the hot topics would be prior to the conference? I would have told you loss mitigation, absolutely, loss-mit, loss-mit, loss-mit. Probably the CFPB’s new mortgage servicing rule which amends Reg X under RESPA. And of course, is related to loss mitigation, as well as foreclosure protections. And then probably the upcoming FDCPA, which is Fair Debt Collection Practices Act changes. And that’s true. All of those were hot topics of discussion. But what I also heard a lot about and what we’re working on internally now to is fair servicing and what that looks like during and after the pandemic, as well as language access for borrowers who have limited English proficiency.

Jordan White: There’s definitely a lot to unpack there. But let’s start with loss mitigation during the pandemic, which is the topic I know our listeners are curious about. What should servicers be thinking about when it comes to compliance?

Shayna Arrington: Everything. They think about every aspect of the process. I think that it really starts with educating the consumer and making sure that they understand what their options for relief are. Pre-pandemic, even most of us that are in the mortgage industry, we weren’t regularly engaging in conversations about things like forbearances, deferrals, partial claims, and yet now here we are, 18 months later, we’re throwing those phrases around like confetti. What we [inaudible 00:03:54] during the pandemic, and what we continue to see is that these are complex concepts, and they do need to be carefully explained to the consumer. I would compare it to the disclosures that an MLO makes to the consumer at the origination of a transaction, where they’re explaining the terms and conditions of the obligation and what that actually means in the long term. The consumer, they need to understand what their options are, and how each option impacts their financial situation. It’s not a one size fits all approach. It’s unique to the individual borrower and what’s right for them and their family. We’re not making widgets here and you cannot treat your borrowers like [inaudible 00:04:33].

It kind of brings me to the next thing that I wanted to touch on with respect to loss mitigation in the current environment, which is actually being able to implement the vast changes that are coming out from all the various regulatory entities. We’ve got government bodies, agencies, all sorts of oversight entities that are coming out with guidance on a daily basis. There are federal regulators like the CFPB out there that are making an amendment rules, they’re trying to protect consumers, you’ve also got state governments and regulators doing the same in each of the 50 states where we do business, then you’ve got GSEs and government agencies like HUD and the VA that are, you know, coming up with these new loss mitigation options that impact waterfalls. And then you even have local governments that are changing the rules around foreclosure proceedings. So it’s a lot. And as a servicer, who’s in taking all of those items, you need to have a robust change management program to stay on top of it all. And then to be able to communicate those changes to the lines of business that are actually doing the work in a way that’s easy to understand and operationalize, and you have to do it quickly and efficiently.

So that’s where we have a leg up, by using great technology and having great people with the right attitude, who genuinely want to help the borrowers, who genuinely want to do the right thing, that’s what matters and that’s what we’re incredibly fortunate to have at TMS. I should probably mention, while we’re on technology, that you’ve got to meet your borrowers where they’re at. Whether it’s a phone call, an email, a text message, the ability to use a chat functionality, whatever it is, you have to have options for communication. And you’ve got to be creative, while still being compliant, of course, in how you use them. And as a loan servicer, you’ve got to make yourself available to your customers in a way that works for them. They have to want to talk to you and come to you for assistance.

Jordan White: You kind of just mentioned this a little bit. The CFPB recently came out with changes to regulations which implements our ESPI, called the 2021 mortgage servicing rule. Can you explain what changes the amendments made and some of the implementation challenges servicers are facing?

Shayna Arrington: That’s a great question. So, to be fair, you did just ask a lawyer to summarize a regulatory [inaudible 00:06:53] So, I’m gonna do my best to recap the [inaudible 00:06:57] in a way that makes sense and does not put your listeners to sleep.

Jordan White: Okay, thank you.

Shayna Arrington: So, okay. The dangers primarily hit on three main areas of servicing: your customer-facing teams who are trying to establish live contact with delinquent borrowers, that’s the first area, the second is loss mitigation, and then the third is foreclosure or I should really say pre-foreclosure. Under the existing rules, a mortgage servicer is required to attempt to establish live contact with a delinquent borrower under what we call the early intervention rules under RESPA. And what the CFPB did is they amended the regulations to require that the servicer provides specific information to the borrower when they’re able to establish that live contact. If the borrower has been impacted by COVID-19, and they’re not on a forbearance plan, you have to tell them three things: you’ve got to let them know the opportunity to request the forbearance based on their COVID hardship, you have to briefly describe the programs available, and then provide information about housing counseling services. Now, if the borrower is already on a forbearance plan when you establish that lead contact, you have to tell them exactly when their plan is going to end, briefly describe the programs available for relief, and then again, provide information about housing counseling services. So very similar requirements, but ones that you do need to carefully script to make sure that you’re covered.

Moving on to loss mitigation changes. The changes that impact loss mid are adding an exception for when a servicer can offer relief option based on an incomplete loss mid application, which is something that’s not required for the majority of the agency-sponsored COVID-19 relief programs. So it does create a carve out for those which is helpful. But what I think is most interesting is the requirement around loss mitigation for a servicer to resume their due diligence efforts, to get a borrower to fill out a complete loss mitigation application, if they fell out of a program that didn’t require a complete application in the first place. So, let’s say you have a borrower who qualified for a trial payment plan, but then they didn’t successfully make all their trial payments on time to complete the plan, or maybe you have a borrower who qualified for a loan modification, but they never actually executed the documents. You have to capture that fallout and you’ve got to have a process on how you’re gonna follow up to get those borrowers back on the loss mitigation track.

Now, the resumption of due diligence efforts is something that was in Reg X before, but the application of it was never this wide in scope. And it’s important to call out that the CFPB doesn’t define what reasonable diligence means. They leave it up to each servicer to decide that for themselves. And it’s an opportunity, again, to really think hard about what the consumer needs, what they deserve, and how to best reach them. And then, the third area, the changes is the rules pre-foreclosure safeguards. Now, this is a point in time, so it actually last from August 31st of this year when the rule went into effect, to December 31st of this year, and during that time it requires a servicer to meet certain criteria before a loan can be referred to foreclosure, or I should say not referred, but really before the first legal filing, or notice can be sent. So there are three safeguards. One is the property’s abandoned. The next is the borrower is unresponsive. And then the third is that the servicer evaluated the borrower based on a complete loss mitigation application, and then all existing foreclosure protections were met. So you only need one of the three to move forward with foreclosure, but let me tell you none of them are easy to achieve and document.

Jordan White: Right.

Shayna Arrington: I know you did ask about implementation challenges. And what I’ll say about that is that even for being a relatively straightforward rule change that actually received a lot of industry feedback and input prior to the rule being finalized, is that there are a number of post-implementation challenges that I’m hearing about from my own team, as well as from my peers in the industry, on policy decisions that have to be made by the individual servicer under the rule, including things like, how detailed you go on your program descriptions during live contact? How you’re gonna define what reasonable diligence is for complete application follow-up? How and even if you can tear a requirement if something is missed? How the rules impact agency requirements, particularly when it comes to things like filing extension requests for first legal? How you can document and feel confident in relying on the unresponsive borrower safeguard, especially when you’re trying to prove a negative and then create an audit trail around it? So, I could probably go on, but I’ll stop there [inaudible 00:11:56] there’s a lot to think about with this rule, especially from a compliance and risk perspective.

Jordan White: Speaking of new CFPB rules, the new Fair Debt Collection Practices Act goes into effect at the end of November. How is the implementation going? And what should servicers and vendors in this space know about the changes coming up?

Shayna Arrington: Well, it’s going. The rule changes under FDCPA, they came out in November and December of 2020. So two separate rule changes, but they go together. And together, they are such a heavy lift that we’ve actually been working on implementation plans since Q1 of this year. And like you said, the rules don’t even go into effect until November, so we’ve got a couple months to go. What’s important to remember here, I think, is the intent of the rule change and why these changes were made. And that was really to modernize the regulations to align with today’s debt collection practices. So the old rule really only refer to phone calls and letters being sent. But we know today we have all other kinds of communication. We’ve got emails, text messages, social media, all kinds of new electronic communications. And the new rule accounts for that. And I should say, it doesn’t just account for it, but it contains extremely specific rules about a consumer’s ability to control those communications down to specific days, specific call times, and even locations.

And for most debt collectors or mortgage servicers who fall into the definition of a debt collector, it’s not just a process change, it’s a comprehensive technology overhaul to be able to comply with the rule and then have the audit trail to prove it. And as I’m sure you know, FDCPA litigation has always been and probably will continue to be a hot topic in the servicing industry. And I really only see that increasing with frequency as the new rule goes into effect. I do wanna mention one other thing, which is for your listeners, if this is the first time that you’re hearing about the FDCPA changes, it’s not just borrow preferences and call times. There’s so much more under the rule. There is validation of email addresses and their source before you can use them. It’s continuing validation of consent to text message or ensuring a number doesn’t appear on a national reassigned number database. There’s a new debt validation letter and process. Stops on certain collection practices until you’re able to validate certain information or a waiting period has passed. There’s a lot in there and I can promise you, it’s absolutely going to be litigated. So you need to make sure you’re doing it right.

Jordan White: Yeah, there’s been a lot of conversation around fair servicing, but what does that mean? And how are servicers getting ahead of it?

Shayna Arrington: It means that you’re treating your customers fairly in the servicing of their loan and you’re not discriminating based on any type of federal or state prohibited basis. We all know the classic ones that we hear about: race, color, religion, national origin, sex, age, marital status, with the more recent distinctions that you do need to keep in mind that would constitute a prohibited basis. Things like sexual orientation, gender identification, military status, and even now language preference. And some of those are based off of federal agency interpretations of the law, and some of them come from state laws, but they’re all valid. Now, you might think as a servicer that you don’t have any discriminatory practices, things like pricing disparities, targeted marketing redlining, practices that we think about when we talk about fair lending and originations. But there’s just as much space for violations of the law in the servicing space as there is an origination, even if it’s unintended.

So you’ve got to think about things like in loss mitigation, let’s say, did you unknowingly deny more black borrowers for loss mid option than you did for your white borrowers? Or did you call your Spanish speaking borrowers and delinquency with the same frequency that you call your English speaking borrowers? Didn’t you maybe refer a greater percentage of loans to foreclosure within a particular protected class? And then what about, even when we’re not talking about delinquency and loss mitigation, what about your call times? Are they shorter for borrowers who don’t speak English as a first language than for those that do? What about your fee waivers? Even if you have a consistent policy or, you know, when and under what circumstances you’ll allow your team to waive fees for a borrower? Are your employees applying that policy in a consistent manner? So, I think you’ve got to remember that discrimination does not need to be overt to be present. You can have a policy or a practice that’s seemingly consistent on its face, but it could have an unintended disparate impact.

So, just like in originations and servicing, you’ve got to know the story your data is going to tell, you’ve got to be looking at these things, testing them consistently, poking holes, and if you find something, you have to understand the why behind it, and then if something needs to change. Now, I will say that the challenge there is that a lot of servicers don’t have or maintain in a usable way, hum the data on the loans that they service. Remember that we capture the demographic data at origination on the loan application, but it’s not always provided in bulk at the time of a servicing transfer. So a servicer might have access to the loan application at the individual loan level, you could go and you could manually pull the PDF and look at it, but if you’re servicing hundreds of thousands of loans, or even millions of loans, there’s not always an easy way to go in and pull that data at the portfolio level in a way that’s going to let you parse it and analyze it in the way we would want to. Nevertheless, we persist, and at TMS we are coming up with some really innovative and creative ways to test it, which is something that all servicers should be focused on these days, especially in the default loss mitigation and foreclosure worlds. You’ve got to be looking at what story your data tells.

Jordan White: You touched on this a little bit before, but what about borrowers with limited English proficiency? I know that’s been a topic of conversation with the CFPB. What should servicers be doing to help serve those customers?

Shayna Arrington: Sure. So this is definitely a hot topic right now. It’s something that I’m personally very passionate about. At the end of the day, we’re there to help our borrowers. And we can’t do that if we can’t communicate with them. I spoke a little bit before about means of borrower communication and meeting borrowers where they’re at. And that includes language preference, too. If I have a borrower who needs help, who doesn’t understand what’s going on with their mortgage, and we have the opportunity to educate them, then we should be doing that in whatever language they need. Right now in the United States, 13% of the population speak Spanish at home. And that equates to more than 40 million people. And the way that the data is trending by, I think, it’s 2050, 1 in 3 people in the U.S. will speak Spanish. Now that does include bilingual speakers of both English and Spanish, but still, I think that those numbers really speak for themselves.

So we do, we staff our call centers with Spanish-speaking team members because we know that the demand is there, and it’s only going to continue to rise in the future. We also offer translation services in over 95 languages. And that’s just for phone calls. We’re now looking at expanding our written communications and certain critical disclosures in Spanish. We’re working with our clients and originators to make sure we’re capturing language preference, the time of loans transferring in and out. And we’re looking at how we can then use that indicator on preferred language to then provide the consumer with information on whichever language they prefer. And that’s really…that’s something that every service should be doing right now. There’s a bill in the House right now that’s focused on expanding language access for consumers by mortgage lenders and servicers. And if that passes, it would require disclosures under both TILA, Truth in Lending, and RESPA to be provided and up to eight languages is chosen by the CFPB. Now, is the bill gonna pass? I don’t know. But the point is that language access is really gaining traction.

And I heard somebody say the other week that this is a bill of intention. It’s really signaling to the Bureau that this is the direction we’re headed in as a country, and it’s just as likely now that the CFPB could then take up an interpretive rule, and they could require certain documents and additional languages. One thing that I wanna call out here because I said before, I am passionate about this, I’m hearing a lot of people talk about how complicated this is, right? How do you make this work? In how many languages? And all these disclosures, and it’s a complicated process in English, right? And now we’re gonna try to put it into, you know, 6, 8, 10 different languages plus. And I’m not discounting that, but I’ll say at TMS, we’re always up for a good challenge. And I’ve just heard a lot of lenders and servicers say, you know, “We’ll implement it when it’s required, and not until then.” And I just, I passionately disagree with that. I don’t think that we should be doing something only when we’re forced to do it. We should be doing it because it’s the right thing to do, and because their borrowers need it, and they deserve to have rock solid service from us every single day.

Jordan White: That’s great, Shayna. Oh, my goodness, you can tell your passion came through for that one to that [inaudible 00:21:38] Well, Shayna, I’d like to say thank you for joining “HousingWire Daily.”

Shayna Arrington: Thanks, Jordan. I appreciate you having me.

Jordan White: Listeners, we’ll see you back here tomorrow. Thank you.