When it comes to compliance, mortgage servicers have plenty to worry about—especially with the CFPB on the lookout for companies violating the CARES Act or charging excessive fees, as we’ve recently shared.
While most servicers understand the importance of tracking the activities of federal regulators, however, there are many other compliance hurdles that require monitoring. One in particular is the growing number of state laws that impact their business, particularly when it comes to debt collection and defaults.
Below are just a few examples—along with some advice on how to comply with multiple agencies and rules all at once.
While the federal Fair Debt Collection Practices Act prohibits servicers from engaging in abusive and deceptive collection tactics throughout the country, many states have their own rules on the books.
Related: What the CFPB's Servicing Metrics Mean for Your Business
Not only do the laws covering the collection of debts vary from state to state, but some are also even stricter than federal protections. For example, some states are very stringent about when and how companies can contact consumers, while others have limits on the amount of interest and fees that can be charged on debts.
In Maryland, for example, a class action lawsuit was recently settled involving a large mortgage servicer that charged fees to borrowers who made mortgage payments over the phone. The plaintiffs alleged that the servicer’s practice not only violated the Fair Debt Collection Practices Act, but multiple state debt collection laws as well — including the Maryland Consumer Protection Act, the Texas Finance Code and the California Unfair Competition Law.
Many states also have rules preventing servicers from foreclosing on a borrower’s home without exhausting all remedies to collect payment or provide a loss mitigation option. In 2022, for example, New York passed the Foreclosure Abuse Prevention Act, which prevents servicers from stopping and restarting the statute of limitations on foreclosure actions.
Supporters of the Act say the new law stops manipulative foreclosure practices that have caused many New Yorkers to lose their homes. The law also applies to both new foreclosures and previous cases in which a final judgement and sale has not been completed, which may mean servicers will need to re-evaluate older distressed mortgages in their portfolios.
While federal and state mortgage assistance programs have been winding down along with the COVID pandemic, several states are still offering help.
In fact, in February 2023, California expanded its relief program to more homeowners who are still struggling to make housing payments due to the pandemic, including homeowners with partial claim second mortgages. Borrowers who have previously received assistance are still eligible for additional funds up to a maximum of $80,000.
With possible fines and legal penalties on the line—not to mention potential reputational damage—it’s more important than ever for servicers to ensure they are fully compliant with state laws in the areas where they do business. Yet given the complex patchwork of state rules, it can be difficult to keep track of every requirement for every borrower scenario.
Detailing every state law that impacts the mortgage servicing business would take a much longer article than this one, too. But there is one very simple way to improve your ability to stay compliant with state regulations, and that is choosing the right servicing technology.
Related: Are You Paying Too Much for Outdated Technology?
For example, at MCC Mortgage Solutions, our state-of-the-art servicing technology is highly customizable and includes extensive reporting functionalities for a variety of processes, such as foreclosures, bankruptcies, delinquencies, REOs, short sales, evictions, and document tracking. Our clients can also access our interactive collection module, which tracks delinquencies and alerts their teams to contact borrowers at predetermined times or under specific circumstances, leaving no room for errors.
If you’re concerned about whether your current platform is helping or hurting your ability to stay compliant with state laws, it’s time to check out MCC Mortgage Solutions. To learn more about our platform, contact us at: 248-350-9290 or drop us a note at info@mccmortgagesolutions.com.