Your Compliance Is Only As Good As Your IT
Yesterday over 20 state regulators and the CFPB took action against Mega-Servicer Ocwen for its continuing inability to address sloppy servicing practices.
Ocwen fueled its amazing growth (as of December it serviced approximately 1,393,766 loans with an aggregate unpaid principal balance of approximately $209 billion) by specializing in sub-prime loans.
Since the vast majority of credit unions are out to help their members, as opposed to squeezing every last penny out of them, there is a natural tendency to view news reports such as this one as simply one more example of “Lenders Gone Wild”.
That being said, Ocwen’s legal troubles hold lessons that all lenders would be wise to pay attention to. Most importantly, your compliance regime is only as good as your IT department. Let me explain.
Front and center in the CFPB’s complaint is the servicer’s alleged inability to properly use its major platform, REALServicing and its sub-systems, to manage its servicing responsibilities. The CFPB contends that Ocwen’s employees failed to put accurate borrower information into the system, but “Even when the information in REALServicing has been accurate, REALServicing has generated inaccurate information about borrowers’ loans due to system deficiencies. Because of these system deficiencies, Ocwen has had to rely upon manual processes and workarounds that have themselves resulted in errors in borrowers’ loan information. “
Ocwen’s problems are not new, it entered into a consent decree in 2013 including one with the DFS. A particular concern has been Ocwan’s inability to properly reconcile escrow accounts. In fact, according to a Cease and Desist order filed by North Carolina, the company informed regulators in January that it would cost $ 1.5 billion dollars to make borrows whole. Not surprisingly, the CFPB contends that Ocwen is wrongly relying on a “deficient servicing platform” that has exacerbated its use of inaccurate loan information.
Here are some questions for you to ponder this weekend. Does your credit union have the ability to spot mistakes in your core operating systems? Does your compliance team have enough coordination with your IT people to ensure that new regulations are being properly translated into computer code? Do you exercise adequate oversight over your third party vendors? For instance, how quickly can you get out of contracts? Is there someone in your credit union charged with auditing your key vendor contracts and software providers on an ongoing basis? As a a new colleague of mine likes to say “garbage in … garbage out.”