Several community banks and mortgage bankers have decided to engage a third party to assist in management of its compliance management system. This type of engagement requires a strong working relationship with the bank. CrossCheck is providing services to: evaluate compliance policies and procedures, answer the bank’s compliance questions, tailor on-line compliance training to the bank’s daily process, provide training to bank personnel, and conduct period audits of the bank’s compliance with consumer regulations. On a quarterly basis, we report the bank’s compliance performance to the Board of Directors.
Several banks and mortgage bankers have engaged CrossCheck to perform an independent review of the effectiveness of their compliance program. This review included assessment of their compliance management system, board of director involvement, compliance training, and substantive testing of transactions to determine compliance with applicable consumer regulations. At conclusion of the engagements, we provide a report that outlines issues and recommendations for improvement of the compliance program and the banks’ compliance policies and procedures.
As a result of a recent regulatory examination a large regional community institution requested CrossCheck document its process and policies for the Allowance for Loan and Lease Losses (ALLL) and the related Asset Classification policy. The engagement resulted in a comprehensive document that is used to strengthen the ALLL process while at the same time reducing overall risk exposure. The policy was readily accepted by its regulator.
A bank engaged CrossCheck to perform a review of the bank’s collections function to determine compliance with internal policies and procedures, investor guidelines, and regulatory requirements. The review included the operations and procedures of the collections department, and focused primarily on real estate lending including modifications made in accordance with Fannie Mae Seller/Servicer guidance on the Homes Affordable Modification Program (HAMP), as well as procedures surrounding collections, foreclosures, and other real estate owned.
A client who had purchased (servicing-retained) a portfolio of HELOCs was concerned that the original underwriting was not as represented and was dissatisfied with the servicing. We reviewed the loan origination and servicing contracts to understand the client’s rights (e.g. repurchase, termination of servicing) and performed a review of the loan origination and servicing files. We found that the loans had been underwritten poorly and had not been serviced in accordance with either the contract or industry-standard practices, resulting in a substantial settlement with the seller and the release of servicing rights.
As a result of the OCC’s Supervisory Guidance on national banks’ foreclosure management practices, multiple OCC banks have engaged CrossCheck to provide on-sight review and monitoring of third-party servicers’ and law firms’ foreclosure processes. These engagements also entail a thorough review of a sample of servicing and foreclosure files.
The client is a national financial institution serving as a trustee on multiple securitizations of subprime mortgages. The client, as trustee, requested repurchase of certain loans by the originator. The trustee required our assistance to determine which loans were eligible for repurchase and what were the potential losses on these loans. CrossCheck reviewed the files for underwriting, compliance, and fraud. We also obtained updated collateral values as a basis for forecasting ultimate loss. This information is being used as the foundation for negotiations with the originator.
CrossCheck was engaged by a private equity firm that buys and services sub-performing, nonperforming, and distressed loans. One of the firm’s exit strategies for its portfolios is the rehabilitation of borrowers through the firm’s ownership of a national lending platform, which is an approved HUD mortgagee. The non-supervised mortgagee’s home office is in Nevada and includes a HUD-approved Direct Lending operation and several branches across the United States. These national and branch operations were audited by CrossCheck. The audit consisted of a complete review of ownership structure, operational controls, origination practices, loan review including adherence to HUD requirements, regulatory compliance, licensing, quality assurance, and onsite branch audits.
With the increased level of repurchase demands from Fannie Mae and Freddie Mac, CrossCheck has assisted a number of its clients who have received such repurchase requests. CrossCheck performs a forensic review to verify the allegations in the GSE repurchase demand. Where appropriate, CrossCheck prepares the rebuttal letter and supporting evidentiary file.
The mortgage subsidiary of a major financial institution requested a forensic review of residential mortgage loans acquired from various mortgage lenders and correspondent banks. The focus of the review is to determine the existence of mortgage fraud which would result in a request to repurchase the loan. CrossCheck assembled a team of mortgage fraud experts to review loans to determine if each loan reviewed had a material misrepresentation. Imaged files of the loans are uploaded to the CrossCheck’s system server and reviewed in a secured environment at the CrossCheck offices.
Continued growth and increased regulatory scrutiny prompted a community institution to implement an internal audit function. They engaged CrossCheck to assist with development of an internal audit plan including a risk assessment, audit schedule, management and board reporting. CrossCheck also executes the plan and provides consultation to the institution as needed.
A major financial institution requested us to perform an assessment (i.e. health check) of its mortgage and home equity operations. This independent review provided the client with an unbiased evaluation to strengthen its operations and reduce its overall risk exposure. The scope and objective of this review included an assessment of compliance with governmental regulations, evaluation of internal controls, determination of adherence to and effectiveness of the bank’s policies and procedures, and comparison to industry standards and best practices.
At the request of a bank client, CrossCheck performed a quality assurance audit as required under the Making Homes Affordable program. The bank had outsourced the processing for this program to a third party vendor, which was included the scope of the review.
A FHA lender requested us to perform branch audits of several sites operated by one of the client’s affiliates. This review was part of the development and implementation of an annual audit program required to be prepared for an upcoming FHA audit. Additionally, we performed detail file reviews of FHA loans. We assigned two consultants to perform the onsite branch audits that entailed a review of regulatory compliance, including adherence to HUD departmental rules and regulations, and company policies, procedures and regulations. Many of our findings related to documentation errors and inconsistencies, indicating that adequate quality control—both prefunding and post-closing—were not present. We assisted the client in updating its quality control plan, making sure that thorough prefunding and post-closing quality control procedures were put in place.
Mortgage servicers with more than 1,000 loans registered with MERS are required to have an independent third party monitor their performance against their quality assurance plans. CrossCheck has performed this role for a number of MERS members. Some MERS members have engaged CrossCheck to perform a system-to-system reconciliation to ensure data integrity between their servicing systems and the MERS system. Additionally, CrossCheck has provided input on procedures to support compliance with MERS rules for MERS signing officers.
Several major money center banks and law firms have engaged CrossCheck as testifying experts and consulting experts on mortgaged-backed securities (MBS) matters. The engagements involve a review of the underwriting and the servicing of a sample of mortgage loans in the securities. The plaintiffs, the purchasers of the MBS, are contending that our clients abandoned their underwriting guidelines, inflated appraisals, misrepresented occupancy, and failed to properly assign the mortgages resulting in invalid foreclosures.
CrossCheck partnered with a major litigation support and valuation firm to provide an opinion as to the fairness of a proposed settlement between the bankruptcy estate of the MBS issuer and various investor groups. CrossCheck supervised the review of a sample of loans comprising multiple MBS trusts in order to evaluate the proposed settlement amount.
A borrower sued the client, a national mortgage lender, alleging that the lender engaged in predatory lending and loan flipping. CrossCheck reviewed the underwriting of the subject mortgage loans and provided expert opinions on the quality of the underwriting (including the borrower’s ability to repay), benefit to the borrower, and suitability of the type of loan.