Risk Management in the Mortgage Industry

Risk Management in the Mortgage Industry

 

 

The mortgage industry is highly regulated and always changing. Risk Control Self- Assessments are done from different viewpoints. The major topics are financial, regulatory, customer facing, and reputation. 

QC review – Audit post close – Legal – Reporting- IT- Risk – Fair Housing- Cloud/Websites – Hacking – Physical Liability Crisis–

 

Apps and companies I’m familiar with but many of

these do or don't match with the needs of fintech, banking, and mortgage:

ICE Risk Management tools, Navex, Hyperproof, Benchmark Gensuite,IBM Open Pages,SAI 360, Resolver, Fusion Framework, Alyne, Tandem, Logic Gate, Policy Hub, Baker Tilly, Situs AMC, Financial Services Cloud, Bryt, Lending Pad,  The Mortgage Office, Mphasis Digital Risk, Covius, Meta Source, Loan Logics, Credit Plus, Adfittech, WolfPAC Integrated Risk Management, Venminder, Logic Manager  

The mortgage industry is a dynamic and highly regulated landscape, requiring lenders to constantly adapt and refine their risk management strategies. Self-assessments conducted from various perspectives, including financial, regulatory, customer-centric, and reputational, are crucial for identifying potential vulnerabilities.

Key Risk Areas:

• Financial: Credit risk, interest rate fluctuations, market volatility, operational costs.
• Regulatory: Non-compliance with Fair Housing Act (FHA) and other relevant laws, data security breaches.
• Customer-Facing: Fair lending practices, loan servicing issues, cyber fraud.
• Reputational: Negative publicity, loss of consumer trust.

Risk Management Tools:

While no tool is foolproof, various solutions can mitigate risks, including:

• Compliance software: Automates compliance checks, ensuring adherence to regulations.
• Advanced credit scoring models: Provide a more holistic assessment of borrower creditworthiness.
• AI-powered fraud detection systems: Identify and prevent fraudulent loan applications.
• Interactive mortgage calculators: Empower borrowers to make informed financial decisions.
• Credit monitoring services: Allow borrowers to track and manage their credit health.

Beyond the Tools:

• Comprehensive risk assessments: Regularly evaluate potential threats and vulnerabilities.
• Open communication: Foster transparency between lenders and borrowers.
• Continuous improvement: Regularly review and update risk management strategies to adapt to the evolving landscape.

It's important to acknowledge that even with robust tools and processes, absolute risk mitigation is impossible. However, by adopting a multi-faceted approach and embracing a culture of continuous improvement, lenders can navigate the complexities of the mortgage industry with greater confidence and protect both themselves and their borrowers.

Other Considerations:

• Human error and unforeseen events can still pose risks.
• While ESG (environmental, social, and governance) factors may not be directly relevant to this specific discussion, they are increasingly important for financial institutions considering the long-term sustainability of their practices.

 

Compliance software: Staying compliant with complex regulations is crucial for lenders. These tools help automate compliance checks, ensuring adherence to Fair Housing Act (FHA), Federal and State lending laws, 

• Equal Credit Opportunity Act (ECOA) .
• .Americans With Disabilities Act (ADA) ...
• Civil Rights Act of 1866. ...
• Home Mortgage Disclosure Act (HMDA)

and other relevant laws.

 

 

Nothing digital is secure.

Human beings are frail bags of water.

Planning for bad events is good but never perfect.

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VASP Veterans Foreclosure Program

 VASP through the VA is going to purchase defaulted VA loans from mortgage servicers starting March 1 2024. Then the VA will place them in the VA-owned portfolio as direct loans. Empower America to work with Veterans experiencing severe financial hardship to adjust their loans – and their monthly payments – so they can keep their homes.

Foreclosure and the VA Servicing Purchase (VASP) Program: What Veterans Need to Know

Facing foreclosure can be a stressful and overwhelming experience for any homeowner, but for veterans with VA-guaranteed loans, there are options available to help them save their homes. The Department of Veterans Affairs (VA) recently announced the VA Servicing Purchase (VASP) program, specifically designed to assist veterans struggling to make their mortgage payments and at risk of losing their homes.

What is the VASP program?

The VASP program allows the VA to purchase defaulted VA-guaranteed loans from mortgage servicers. The VA then modifies the loan terms, making them more affordable for the veteran, and holds the loan in its own portfolio. This program provides veterans with a last resort option if other traditional loss mitigation options haven't been successful.

What happens to a veteran in foreclosure under the VASP program?

If a veteran is facing foreclosure on a VA-guaranteed loan, the following steps might occur:

1.  Servicer Attempts Other Solutions: Before resorting to foreclosure, the loan servicer is required to explore other options with the veteran, such as forbearance, loan modification, or repayment plans.

2.  VASP as an Option: If other solutions prove unsuccessful, the servicer may propose selling the loan to the VA under the VASP program.

3.  Loan Modification: If the VA purchases the loan, they will work with the veteran to modify the loan terms, typically by:

o   Reducing the interest rate

o   Extending the loan term

o   Forgiving a portion of the principal

4.  Repayment Plan: The veteran establishes a new repayment plan with the VA based on their current financial situation.

5.  Continued Homeownership: If the veteran successfully fulfills the terms of the modified loan, they can remain in their home.

Important Points for Veterans:

• VASP is not yet available: While the program was announced in November 2023, it is not expected to launch until March 2024.
• Not every veteran qualifies: The VASP program is intended for veterans facing imminent foreclosure and who have exhausted other options.
• Seek help early: Veterans facing difficulty making their mortgage payments should immediately contact their loan servicer to discuss available options, including forbearance, loan modification, and the VASP program when it becomes available.

What will happen to Veterans who agreed to sub-to, wrap around, creative sales programs for investors? What will happen to veterans who were in foreclosure in 2023-2024 before this program?

Veterans income that can make sense to stay. I’m hoping financial arrears are tacked on to the end of the thirty years, create forty-year loans, waive servicing legal and late fees, find uniformity in hazard insurance policies, and forgive without 1099 to the vet. Local property tax assessor offices, state revenue offices, and the IRS need to join hands and forgive and reduce fees and taxes to veterans in trouble. What say you?

HERE ARE THE PUBLIC COMMENTS TO THE PROGRAM:

https://www.federalregister.gov/documents/2023/11/27/2023-26083/agency-information-collection-activity-department-of-veterans-affairs-servicing-purchase-vasp

 

HOTMA and EIV For Landlords

Mardsen Hardley     Sea and Shore

John Singer Sargent

Key reporting requirements for landlords under HOTMA:

Income Reporting:

Frequency: Landlords must report tenant income and rent changes annually through the HUD Electronic Tenant Selection System (e-TSN).

Information required:

Gross income for all adult household members and authorized minors.

Source of income for each earner.

Deductions claimed by the tenant on their income taxes.

Any changes in rent over the past year.

Timing: Reports must be submitted within 60 days of the annual income recertification or any changes in rent or income exceeding 10%.

Vacancy Reporting:

Requirement: Landlords must report any units becoming vacant within 24 hours to the local Public Housing Authority (PHA) or HUD field office.

Additional information: The report should include details like the unit number, lease information, and reason for vacancy.

Tenant Fraud Reporting:

Responsibility: Landlords must report any suspected tenant fraud related to the program to the PHA or HUD field office.

Examples of fraud: Providing false income information, unauthorized occupants, exceeding income limits, or misuse of vouchers.

Other Reporting:

Unit inspections: Landlords may be required to report on the condition of units during scheduled inspections.

Tenant requests: In some cases, landlords may need to report tenant requests for repairs or modifications.

Important notes:

Compliance: Failing to comply with reporting requirements can lead to penalties, including suspension from the program or financial sanctions.

Resources: The Department of Housing and Urban Development (HUD) website provides resources and guidance on HOTMA requirements for landlords, including the e-TSN system and specific reporting forms.

EIV Income Report and Safe Harbor for Landlords under HOTMA

The Electronic Income Verification (EIV) system automatically retrieves income data from various sources, including Social Security Administration and Internal Revenue Service.

Landlords can use the EIV:

As the sole verification for Social Security income.

In conjunction with self-certification for prior-year income at annual reexaminations.

As supporting documentation for other income types if not fully covered by Safe Harbor.

Benefits for landlords:

Reduces need for manual collection and verification of income documents.

Streamlines the process and potentially saves time.

Increases data accuracy and reduces risk of fraudulent reporting.

Limitations:

EIV doesn't cover all income sources (such as self-employment sources and some gig income).

May not be available for all programs or locations.

Safe Harbor:

Safe Harbor allows landlords to accept income reported in certain other programs without further verification.

Programs accepted under HOTMA:

Social Security Administration benefits annual cost-of-living adjustments (COLAs) be included

Supplemental Security Income (SSI)

Veterans Affairs benefits

Unemployment insurance

State or local public assistance programs

Earned Income Tax Credit (EITC)

Benefits for landlords:

Simplifies income verification process for qualifying income.

Reduces administrative burden and saves time.

Limitations:

Only applies to specific income sources listed above.

Income from assets is always subject to verification.

Remember:

Landlords can choose between EIV and Safe Harbor based on preference and eligibility.

Combined use of EIV and Safe Harbor is prohibited.

Landlords are responsible for understanding and following HOTMA reporting requirements in their area.

 

OTHER NOTE:

Section 104 of HOTMA sets asset limits for households seeking or keeping federal rental assistance. The limits are $100,000 in net household assets and ownership of real property that is suitable for occupancy by a household as a residence. However, retirement accounts and educational savings accounts are not considered a net family asset and are not included in the limit. Assets are reviewed for extrapolating it as an income source.

Mardsen Hartley

Mardsen Hartley