In 2022, the mortgage landscape, shaped by a fluctuating housing market and interest hikes that sent volumes plummeting, left servicers with shrinking portfolios and workforces. It did not, unfortunately, eliminate the hazards around documentation challenges.
In some cases, servicers who brought outsourced work back in-house or sold-off parts of their portfolios were left with the more trouble-prone files. At the same time, there were signs of trouble for borrowers, with growing numbers of Chapters 11 and 13 bankruptcy filings and increasing mortgage delinquencies that created additional documentation challenges.
This report analyzes the top 10 servicing QC findings identified during MetaSource’s servicing quality control audits in 2022. It also provides some best practices for managing servicing documentation and ensuring compliance.
Top Servicing QC Findings for 2022
Below is the complete list of MetaSource’s top 10 mortgage servicing QC findings for 2022.
- Missing bankruptcy notices and proof of claim documentation
- Failure to apply payments within 24 hours of receipt
- Incorrect setup of hazard insurance premiums and due dates
- Inefficient monitoring and delays in filing for relief from bankruptcy stays on Chapter 7 and 13 filings
- Absence of current hazard insurance policies in the system of record during the audit period
- Unaddressed discrepancies between hazard insurance coverage details in the servicing system and the actual insurance binder on file
- Failure to correctly record payment receipt dates in the servicing system
- Failure to properly report accurate loan status to credit bureaus
- Delayed lien release submissions
- Failure to issue short year statements in a timely manner following receipt of payoff funds
Keeping Up with Bankruptcy Claims
With pandemic relief programs ending, servicers faced a growing number of borrowers in distress. The number of individuals seeking to reorganize their debts under U.S. Bankruptcy Court protection increased by 31% and mortgage delinquencies rose after a period of historic lows.
The increase in Chapter 13 bankruptcy filings added to documentation responsibilities for servicers. Two of the top findings revealed gaps in processes for keeping up with required bankruptcy court notices, proof of claims, and requests for relief from stays that prevent servicers from seeking payment or initiating foreclosure proceedings.
These are potentially expensive lapses, cautions MetaSource QC Manager John Morales. “Servicers who miss their window for relief are taking a big risk,” he said. “Property that is subject to prolonged abandonment or vacancy can lose value quickly. These are not oversights that servicers can afford to leave uncorrected.”
Due Dates, Defaults & Disaster Declarations
Keeping due date, payment date, and loan status documentation updated is a perennial source of servicing QC trouble and is typically the result of poor processes for storing, accessing, and retrieving the needed information.
Servicers continue to waste too much time searching through communication and transaction histories that should be indexed and easily accessible. In 2022, poor processes for importing and indexing data and documents left servicers with gaps that complicated transfers in some cases.
“Some transfers happened four or five months earlier and they’re still going through the indexing process today,” said Morales. “It can create a real challenge if Fannie or Freddie or an investor wants to audit.”
Servicers also struggled with credit reporting requirements in 2022, and MetaSource audits found an increased risk of invalid credit bureau submissions.
“With the increase in mortgage defaults, along with various COVID protections and FEMA disaster declarations, servicers had a hard time juggling the various credit reporting requirements and exceptions,” Morales said.
And the struggles, unfortunately, didn’t end there. Download the full report for more information on the other top findings as well as best practices for avoiding them.
Download the 2022 Servicing QC Findings Report