Between January 2014 and April 2016, the Consumer Financial Protection Bureau conducted “supervision work” on mortgage servicers, focusing particularly on compliance with new servicing rules and any unfair, deceptive, and abusive practices. CFPB has issued a report on those findings—and the bureau is not pleased.
“The magnitude and persistence of compliance challenges since 2014, particularly in the areas of loss mitigation and servicing transfers, show that while the servicing market has made investments in compliance, those investments have not been sufficient across the marketplace,” CFPB stated in its report. “Outdated and deficient servicing technology continues to pose considerable risk to consumers in the wider servicing market.”
The bureau pointed out, for instance, that if a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, it must notify the borrower in writing within five days acknowledging receipt of the application. If the application is incomplete, the notice must state the additional documents and information needed and a reasonable date by which to submit them.
Yet CFPB examiners found that “one or more” servicers failed to send any loss mitigation acknowledgment notices due to a platform malfunction.
[A loss mitigation application is a delinquent borrower’s notice to the servicer that he or she wishes to try to work out an arrangement on the debt. To the servicer, this is an opportunity to reduce the mortgage investor’s loss on the troubled loan.]
“Mortgage servicers can’t hide behind their bad computer systems or outdated technology,” said CFPB Director Richard Cordray. “There are no excuses for not following federal rules. Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.”
More violations cited by CFPB
Perhaps “properly and legally” should be interpreted as “perfectly.” Many of the violations cited by the bureau could be attributed to simple error. Among them:
• Requesting unnecessary documents.
• Requesting documents the borrowers already submitted.
• Failing to include a due date for additional documents and information.
• Failing to specify which additional documents and information are needed to complete a loss mitigation application until several weeks after acknowledgment of its receipt.
• Giving borrowers 30 days to submit additional documents, but denying borrowers’ applications for loss mitigation before that period ended.
• Failing to tell borrowers they should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options.
Ron Haynie, senior vice-president of Mortgage Finance Policy at the Independent Community Bankers of America, says the bBureau’s intolerance of even minor error sets an unattainable standard.
“Transfer of servicing is an incredibly complex process,” he explains. “You don’t just send somebody an Excel file with a bunch of loan numbers and it’s all done. It requires an exchange of data records, an exchange of physical files, processing of all the legal documents—there are lots of moving parts, so there are lots of opportunity for things to go wrong.”
Some of the actions the CFPB takes assumes there was a deliberate attempt to do it wrong, according to Haynie.
“CFPB assumes the entities involved were looking to try to harm borrowers when the majority of these incidents are ones where there are actual errors. I don’t know any lender who deliberately loses paperwork on a borrower or deliberately tries to make sure a borrower gets thrown out of their house,” says Haynie.
Don’t push the wrong button!
The report bears out Haynie’s concerns. In a case where a servicer sent warnings that foreclosure was imminent to borrowers who were current on their HELOCs, CFPB deemed that a deceptive practice instead of a clerical error.
Another servicer was cited for mistakenly sending letters soliciting loss mitigation applications to borrowers who were ineligible………….
In this eleventh issue of Supervisory Highlights, we share findings from recent supervisory examination observations in mortgage servicing. To provide additional context for readers, we integrate these recent observations with observations from previous editions of Supervisory Highlights by subject matter – loss mitigation acknowledgement notices; loss mitigation offers and related communications; loan modification denial notices; policies and procedures; and servicing transfers. The report also discusses Supervision’s approach mortgage to servicing exams, including a description of recent changes to the mortgage servicing chapter of the CFPB Supervision and Examination Manual.
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