By: Kristie D. Kully
The servicing standards imposed on the five largest mortgage loan servicers by the recent global settlement agreement with state and federal regulators, described here, continue to pile on the “SPOC” requirements. “SPOC” stands for a single point of contact – a knowledgeable and accessible person a troubled borrower may contact to receive information and assistance in the loss mitigation, loan modification, and foreclosure process. SPOCs may do little to resolve the foreclosure documentation irregularities that sparked state and federal regulators to initiate their investigation. However, they have been touted as key to the efforts for national servicing standards, and are an inevitable adjunct to the global settlement agreement.
SPOCs seek to address complaints that certain servicers, in handling the crush of borrower inquiries since the subprime mortgage meltdown, failed to inform borrowers about their loss mitigation options, lost documents, and created confusion and delays. While the global settlement agreement requires each of the five largest servicers to designate a SPOC for each potentially-eligible first-lien mortgage borrower, the SPOC model is already required for 14 large banks as a result of a Consent Order signed last year with federal banking agencies. Similarly, Fannie Mae and Freddie Mac (the GSEs) began last year, in their new default servicing guidelines, to encourage (but they do not yet affirmatively require) their servicers to use SPOCs. The U.S. Department of Treasury, announced last year that SPOCs were required for the 20 largest servicers that participate in the Home Affordable Modification Program (“HAMP”). States may even be joining the SPOC trend – Michigan enacted a requirement that a mortgage holder or servicer must designate an individual (or a department or unit) to serve as a contact for borrowers in foreclosure proceedings, which contact is authorized to facilitate negotiations and attend meetings with the borrower. Thus, the SPOC specter has been circling for some months now, although it has been rolled out with differing degrees of specification and clarity, and with different timing requirements.
According to the global settlement agreement with the five largest servicers, those servicers will be required initially to designate a SPOC for a particular borrower “promptly” after the borrower requests loss mitigation assistance (if the borrower is potentially-eligible for that assistance). (Similarly, the HAMP SPOC requirement is triggered when the servicer successfully contacts a borrower and determines that it will consider the borrower for HAMP.) Once assigned, the global settlement agreement provides that the SPOC must become knowledgeable about the borrower’s situation and current status in the delinquency/imminent default resolution process, and will then have primary responsibility for communicating available loss mitigation options, the actions the borrower must take, and the status of the servicer’s evaluation. The SPOC also will be accountable for the coordination of all documents associated with loss mitigation activities. The SPOC’s duties are not merely reactive; the agreement appears to require the SPOC affirmatively to reach out to the borrower with introductions, information, and assistance. (Similarly, a servicer under HAMP must identify the SPOC in a written notice to the borrower within five business days of the assignment.)
The servicer must ensure that relevant records are promptly available to the SPOC, and that a SPOC can escalate the borrower’s account to an appropriate supervisor upon the borrower’s request.
The SPOC generally remains assigned to a particular borrower’s account until either the servicer determines in good faith that all loss mitigation options have been exhausted, or the borrower’s account becomes current (i.e., the SPOC assignment does not extend through the foreclosure process, unlike the Michigan provision mentioned above). Treasury’s HAMP guidance does not expressly address when the SPOC relationship ends, but requires the SPOCs to be available at least until all loss mitigation options have been exhausted. It also differs from the settlement by requiring the SPOC to affirm, prior to a scheduled foreclosure sale, that to the best of his/her knowledge, all available loss mitigation alternatives have been exhausted and a non-foreclosure outcome could not be reached. Both the settlement and HAMP guidance require the servicer to provide the borrower with updated contact information if the designated SPOC is reassigned, no longer employed by the servicer, or otherwise not able to act as the primary point of contact.
The global settlement agreement also applies the SPOC model to communications with government regulators and enforcers, requiring servicers to designate one or more management level employees to be the primary contact for Attorneys General, state financial regulators, the Executive Office of U.S. Trustee, each regional office of the U.S. Trustee, and federal regulators, who may supply or require information regarding defaulted borrower complaints or inquiries. The servicers must acknowledge those inquiries within 10 business days and provide a substantive written response within 30 days.
While SPOCs have been brandished about in various forms, it is still not clear what a SPOC system entails. The recent global settlement agreement does not address, e.g., how a servicer could feasibly assign a single individual to each applicable borrower and expect that individual to be available at any time for direct communications, regardless of fluctuating call volumes or other staffing/scheduling hurdles. Treasury expressly requires the assignment of a single individual to each borrower, while the GSEs’ model at least allows SPOCs to consist of a dedicated team of individuals for each borrower, as an alternative to a single individual. The global settlement agreement’s SPOC requirement presumably will be interpreted through a similar “rule of reason” lens.
As the servicers (some of which may be subject to multiple sets of SPOC requirements, as described above) work through these specifics, it is clear the SPOC requirements represent a big change in the way servicers staff and manage their shops. It may not be feasible to have teams that are experts in a particular area of default servicing (i.e., a loan modifications group, a group for short sales or other workout options, a bankruptcy group, a foreclosure group). The servicers apparently will need to have a team of SPOCs who are trained and expert in the entire array of default servicing activities (with perhaps the ability to use a “lifeline” as necessary).
Additionally, the SPOC requirements remind us that certain states (and the Department of Housing and Urban Development (“HUD”)) determined that individuals who are employed by state-regulated mortgage servicers and who assist borrowers in the loan modification process may need to be licensed as loan originators. The federal banking agencies have, for their part, held that employees of banks and savings associations (and certain of their subsidiaries that are regulated by a federal banking agency, among certain other entities) who are engaged in loan modification activities, or “bona fide cost-free loss mitigation efforts that result in reduced and sustainable payments for the borrower,” typically would not need to be registered as loan originators (unless they also conduct more than a de minimis number of refinancings). Since the Consumer Finance Protection Bureau (“CFPB”) took over the banking agencies’ authority to determine the scope of loan originator registration (and HUD’s authority with regard to the scope of licensing at the state level), the CFPB intends (for now, at least) to “substantially duplicate” their prior interpretations. Nonetheless, the CFPB will have the final say as to whether the new crop of SPOCs will flood the loan originator registration system.