On January 18, the Consumer Financial Protection Bureau (CFPB or Bureau) released its updated Mortgage Servicing Examination Procedures. The stated rationale behind the revised Examination Procedures is to “describe the types of information that CFPB examiners gather to evaluate mortgage servicers’ policies and procedures, assess whether servicers are complying with applicable laws, and identify risks to consumers related to mortgage servicing.” The Examination Procedures were last updated in June 2016. While the update includes things like streamlined loss mitigation options that codify the flexibilities in the CFPB’s mortgage servicing rules implemented during the COVID-19 pandemic and further focus on fees such as phone pay fees, the most significant update involves instructing examiners on how to conduct a disparate impact analysis in loss mitigation program reviews.
The CFPB now instructs examiners seeking to determine whether a servicer’s loss mitigation program results in an adverse impact on a prohibited basis group to rely on procedures outlined in the CFPB’s Equal Credit Opportunity Act (ECOA) Examination Program Manual, including the ECOA Baseline Review Modules and the Interagency Fair Lending Examination Procedures, and to obtain the following information:
- Information sufficient to determine whether loss mitigation workouts are in compliance.
- For example, sufficient information to conduct an analysis of the distribution of members of a particular prohibited basis group in the pool of delinquent borrowers versus the distribution receiving a range of loss mitigation outcomes, including reinstatement, repayment plan, forbearance, loan modification, short sale, deed-in-lieu, and foreclosure.
- Information sufficient to determine whether loan modifications are in compliance.
- For example, sufficient information to conduct an analysis of processing times and loan modification attributes including interest rate, principal, and monthly payment reductions for members of a particular prohibited basis group compared to other borrowers.
- Information sufficient to determine whether the rate and timing of foreclosures are in compliance.
- For example, sufficient information to analyze the representation of members of particular prohibited basis groups among seriously delinquent borrowers versus their representation among borrowers who lose their homes to foreclosure.
The revised Examination Procedures are notable in two ways. First, it represents the first official, public statement where the CFPB is setting forth its intention to conduct fair lending statistical analyses of servicing decisions. Second, the information examiners are directed to analyze seems to omit any discussion of controls in the analysis to allow the Bureau to compare similarly-situated borrowers. For example, in assessing processing times, it would seem relevant to include the borrower’s own speed in responding to requests for information from a mortgage servicer. In assessing foreclosures, it would seem necessary to control for the borrower’s ability to qualify for a loss mitigation option other than foreclosure (or, for that matter, whether the borrower was previously enrolled in such options unsuccessfully). We would expect the CFPB to control for such factors in any analysis, but the exam manual is unhelpfully silent on the subject.