Annual Certification is a mandatory yearly process where loan servicers certify compliance with rules set by regulators and investors such as Fannie Mae and Freddie Mac. This process upholds standards in managing loans, including mortgage and student loans, ensuring servicers handle payments, escrow accounts, borrower communication, loss mitigation, and foreclosure practices properly.
The certification acts as a regulatory audit, requiring the loan servicer to conduct an internal review of its servicing operations and attest to its accuracy and legality. A senior executive must sign this certification, making them legally responsible for compliance. Failure to comply can result in fines, penalties, or loss of servicing privileges.
Since the 2008 financial crisis, regulations have tightened to prevent servicing errors that contributed to wrongful foreclosures and borrower harm. Agencies like the Consumer Financial Protection Bureau (CFPB) actively enforce mortgage servicing rules supported by annual certification requirements.
Key areas reviewed during certification include:
- Payment Processing: Ensures accurate and timely application of payments, preventing wrongful late fees or credit reporting mistakes.
- Escrow Accounts: Verifies property taxes and insurance premiums are paid on time from escrow, safeguarding against tax liens or insurance lapses (Escrow Account).
- Borrower Communication: Confirms adequate customer service response and clear loan statements, facilitating borrower understanding and assistance.
- Loss Mitigation: Checks proper handling of forbearance and modification applications, important for borrowers facing financial hardship (Mortgage Loan Modification).
- Foreclosure Practices: Ensures full compliance with federal and state foreclosure laws, protecting borrowers from wrongful foreclosure (Foreclosure).
Although this process is internal and regulatory-facing, annual certification benefits borrowers by compelling servicers to maintain high operational standards and fairness. Borrowers are encouraged to stay vigilant by keeping records, querying errors through formal notices, and filing complaints with the CFPB if servicing issues arise.
For more details about your rights and steps to challenge servicing errors, visit the CFPB’s Mortgage Servicing Rules and the CFPB complaint page.
Sources:
- Fannie Mae Servicing Guide: Annual Eligibility Certification (https://servicing-guide.fanniemae.com/Serving-Guide/Part-A-Doing-Business-Fannie-Mae/Chapter-A4-Maintaining-Servicer-Eligibility/A4-1-01-Annual-Eligibility-Certification/1041926991/A4-1-01-Annual-Eligibility-Certification-05-15-2024.htm)
- CFPB: How can I complain about my mortgage servicer? (https://www.consumerfinance.gov/ask-cfpb/how-can-i-complain-about-my-mortgage-servicer-en-122/)
- CFPB: Mortgage Servicing Rules (https://www.consumerfinance.gov/rules-policy/final-rules/2016-amendments-to-the-2013-mortgage-rules-under-the-real-estate-settlement-procedures-act-regulation-x-and-the-truth-in-lending-act-regulation-z/)