On August 21, the CFPB issued a report entitled “Supervisory Highlights: Summer 2013,” describing the agency’s recent investigative efforts and “findings”, with a particular focus on compliance management systems and mortgage servicing practices. The report draws attention to the CFPB’s new mortgage-servicing rules, which take effect on January 10, 2014.
Within the mortgage-servicing field, the CFPB claims to have identified various “risks to consumers . . . at both banks and non-bank entities” over the last several months, including risks in servicing transfers, payment processing, and loss mitigation. Specifically, the report provides anecdotal examples of the following conduct purportedly observed by CFPB examiners:
- Non-compliance with requirements of RESPA to provide disclosures to consumers about transferring the servicing of their loans;
- Lack of controls regarding handling of key documents necessary to ensure proper transfer of servicing responsibilities; and
- Failure to organize and label documents such that new servicers were unable to utilize information provided by borrowers to prior servicers.
- Inadequate notice to borrowers of a change in the address to which payments should be sent;
- Failure to provide notice to borrowers of decision to delay property tax payments from escrow account (from December to January) such that borrowers could not claim tax deductions for the prior year;
- Late payment of property taxes in violation of RESPA;
- Violations of the Homeowner Protection Act, including delays in processing borrowers’ requests for cancellation of private mortgage insurance (“PMI”) and improper handling of unearned PMI premiums;
- Inadequate documentation of the reasons for and amounts of default-related fees; and
- Erroneous charges of default fees to borrowers that should have been charged to investors under relevant investor agreements—an odd “finding” to be sure.
- Inconsistent borrower solicitation and communication;
- Inconsistent loss mitigation underwriting;
- Inconsistent waivers of certain fees or interest charges;
- Long application review periods;
- Missing denial notices;
- Incomplete and disorganized servicing files;
- Incomplete written policies and procedures; and
- Lack of quality assurance on underwriting decisions.
Not surprisingly, disproportionate emphasis is placed on loans in default, rather than on the overwhelming majority of loans which are current. Given the level of automation and computerization of loan servicing, some of the CFPB’s “findings” seem unrealistic. For example, according to the report, problems in the areas of concern are compounded by a lack of sufficient compliance management systems, particularly among non-bank servicers. In addition, the CFPB claims to have found that some non-bank servicers leave compliance matters to individual branches rather than having a centralized and uniform system, and do not have consistent policies or practices in place to prevent violations of federal rules and regulations—another odd finding given that the vast majority of servicing is done on central platforms in servicing centers, and not in individual branch offices.
In proper perspective, this report should serve as another warning shot across the bow that the CFPB will be looking at these issues in conjunction with the effective date of the new servicing guidelines on January 10, 2014. Mortgage servicers should pay particular attention to the areas of concern noted in the report and refine their servicing quality control and compliance management systems to insure they do not inadvertently have practices in place which the CFPB has specifically identified as problematic.