Reverse Mortgage Magazine has educated our readers and consumers about what happens after a reverse mortgage closes and the rules and timelines that servicers must follow when working with reverse mortgage borrowers and their estates.
Little, however, has been spent on the business side of servicing. For example, I know that a subservicer services loans on behalf of another servicer. I’ve heard the term “master” servicer, but I don’t understand the roles and responsibilities associated with being a master servicer versus a subservicer.
I wanted to better understand these issues. So, I contacted Shawna James, who I first met in 2001 when she was a servicing manager at Seattle Mortgage Company. James has spent almost two decades working at some of the largest firms in the reverse mortgage business, not just in servicing but wholesale and compliance as well. For the past two years, she has served as a director at Mortgage Assets Management, LLC, which acquired Houston-TX-based Reverse Mortgage Solutions in late 2019.
Reverse Mortgage Magazine sat down with James to sort through the different types of servicing designations, to get her thoughts on the impact of COVID-19 and to talk about the challenges of servicing reverse mortgages.
Reverse Mortgage Magazine: What exactly is a master servicer?
Shawna James: It’s important to understand that there are various designations of servicing. A master servicer and a primary servicer can be the same entity. Under both designations, the entity could own the mortgage servicing rights (MSRs). There is also a master servicer designation in which the company doesn’t own the MSRs and instead provides an oversight role. This can be as an asset manager, a trustee or a loan administrator that has been contracted by the primary servicer or investor to perform oversight responsibilities rather than working directly with reverse mortgage borrowers.
RM: Are most reverse mortgage servicers master servicers?
SJ: No. I would classify them as primary servicers. If you service loans in a trust, you will have a trust administer or trustee involved, and they would fit the master servicer designation role. If you do any sort of securitizations, then a master servicer is nothing more than a back-up servicer in the event the primary servicer defaults on its obligations.
RM: Since the primary servicer designation is more commonplace, I’ll refer to that from now on. Do you service your own loans? What distinguishes a primary servicer from a subservicer?
SJ: MAM has its loans subserviced. The responsibilities of the primary servicer if the loans are subserviced is that we have fiduciary obligations to investors or the bond holders to ensure the loan servicing is done in accordance with all applicable requirements and service level agreements. The subservicer handles the day-to-day servicing responsibilities and works directly with our borrowers.
RM: It’s worth noting that not only does a servicer have to comply with FHA guidelines, but there may be even more stringent guidelines put in place by the investor of the loans that you’re servicing. Correct?
SJ: Yes. We must comply not only with FHA but with each individual investor requirements as well, which gets into the service level agreements we touched on earlier. Let’s take Fannie Mae, for instance. Fannie has substantially more stringent requirements than any other investor in the industry. And it is also worth noting that complying with HUD guidelines presents ongoing challenges with the constant Mortgagee Letter releases and then subsequent modified releases. The servicers/subservicers must be flexible enough to adapt to changes on the fly and ensure processes and controls are in place to capture these required changes.
RM: Can you give examples of investor requirements that may differ from FHA?
SJ: Let’s look at Fannie Mae again. Fannie dictates the attorneys you can use for foreclosure and bankruptcy where FHA does not. Fannie also has strict service level agreements on deliverables that a servicer could face monetary penalties if a deliverable is missed, and they bill for any loss and hold the servicer accountable until proven not accountable by providing supporting justification.
RM: Under what circumstances would a primary servicer use a subservicer in the reverse industry?
SJ: A primary servicer would use a subservicer if it doesn’t want to deal with the increased staffing levels necessary to service loans, or because of the technology limitations. The lack of technology has dictated why so many utilize one of the two subservicers in this industry. On the conventional forward mortgage side, there are dozens of technologies that could be licensed to service loans. On the reverse side, everybody had to build their own proprietary software until the launch of ReverseQuest by Reverse Technology Group last year. At least now there in an option available for primary servicers wanting to service their own loans.
RM: MAM utilizes a subservicer yet still employs a full-time servicing oversight staff. What are their main responsibilities if they aren’t helping reverse mortgage borrowers?
SJ: At MAM, we perform a lot more in-house servicing-related activities compared to other servicers. Our staff handles the investor reporting, custodian/collateral management, quality control reviews, file preparation for HUD assignment claims, and all legal and title curative actions and efforts. We closely monitor the subservicer to the service level agreements, adherence to guidelines and their overall performance. On the tail end of a loan, we look at loss analysis reviews associated with FHA claims and any necessary settlements with the investor. Every servicer and subservicer relationship is going to be a little bit different. In addition to service level agreements, every master or primary servicer delegates authority to the subservicer to perform certain services on its behalf. This is done through delegated authority policy, which outlines what a subservicer can handle and what needs to be escalated to the master or primary servicer for approval.
RM: Do you monitor the interactions between the subservicer and your borrowers?
SJ: The monitoring is completed by reviewing the monthly performance matrix results and quality control reviews, with a closer monitoring of borrower facing interactions on written complaints, timely communication on non-performing loans; by tracking the efforts made with resolution management or loss mitigation interactions in situations that cannot be resolved.
RM: Even though your borrowers deal mostly with the subservicer are there specific instances when, as the primary servicer, you would intercede and deal with them directly?
SJ: There may be some situations where that would occur. Let’s say an investor wants to do a marketing campaign for its proprietary loans. The investor or servicer would work with the subservicer to send out a mailing that refers calls to them, instead of to the subservicer.
RM: I’d like to learn more about the responsibilities that a primary servicer has to the loan investors. What can you tell me about that?
SJ: The primary responsibility is protecting an investor against exposure to losses that result in servicing deficiencies, litigation matters, or borrower related complaints with the potential adverse media exposure. The primary or master servicer should have or develop key performance indicators that closely monitor these areas of risk.
RM: What do you find is the most challenging aspect of being a reverse mortgage servicer?
SJ: HUD. It’s the lack of clear guidance and written guidelines. When you have servicers across an industry who all interpret guidance differently, it’s problematic. Reverse mortgages are the most difficult loans to service because of all the requirements imposed by HUD that have servicers tripping over themselves trying to maintain compliance. There have also been numerous guidelines imposed that have created considerable losses to investors over the years due to unclear guidance or delays that pushes loans to miss timelines or exceed the maximum claim amount. HUD will not pay claim amounts over the max claim unless it is debenture interest that pushes it over. While the industry continues to rebound, HUD has made originating and servicing HECM loans very expensive.
RM: Do you have any proprietary reverse mortgages? Are there many differences servicing a HECM compared to a proprietary reverse mortgage?
SJ: We do have proprietary reverse mortgages in our portfolio. Generally, proprietary reverse mortgages are handled in the same manner as a HECM. Where it differs is that proprietary reverse mortgages are not subject to the same HUD timelines and requirements, thus no claims are filed with HUD for expense reimbursement. This allows for more flexibility, especially with non-performing loans. Conversely, with proprietary reverse mortgages, you could have investors less willing to allow the extended loss mitigation options, such as extending a tax and insurance repayment plan out to the five year max permitted by HUD.
RM: How has COVID-19 impacted your servicing operations?
SJ: We handle the gathering of documents for HUD assignment claim packages and have had some challenges with obtaining needed documents from 3rd parties. Beyond that, MAM employees all have laptops and had previously, through a continuity preparedness planning, tested all employee’s ability to work from home.
RM: Thank you, you’ve been very generous with your time. For my last question, I’d like to know if there’s anything that servicers can be doing better to improve the customer experience?
SJ: There’s always room for improvement. When I ran servicing from 2001 to 2005, I did not concern myself with how long calls between borrowers and our customer service staff lasted as I see people focused on today. In my opinion, dropped call percentages are important but not call duration. There is more of an education component and hand-holding that needs to happen when working with senior borrowers, which creates the longer talk times. Another area I could see that needs improvement is for servicers to take the time to read through the loan notes on prior conversations with a borrower or heirs before calling them about a specific default. It makes the calls more productive when you are not repeating the same conversations that happened on prior calls.