The mortgage servicing industry is also at the front of the line for new regulations, according to the CFPB. Raj Date recently stated that the incentives for servicers are not aligned with borrowers’ interests. Accordingly, Date announced that the CFPB and other federal agencies are collaborating to develop “commonsense national servicing standards.” Date did not provide details about the forthcoming servicing standards, but did share his thoughts on two “structural features” that make mortgage servicing “especially prone to consumer harm.”
The first problem he identified was that consumers were not able to choose their mortgage servicer, while mortgage servicers could freely buy and sell servicing rights. Thus, “a servicer can, in a sense, ‘fire’ a borrower; but a borrower can’t ‘fire’ a servicer.” Date stated that this arrangement “reduces the incentive for servicers to treat borrowers properly.” Date’s second problem was that “[t]he current structure of servicing fees creates a strong incentive to under-invest in adequate technology, people, and processes to handle unusual spikes in delinquency.” This problem, according to Date, stems from fixed servicing fees that incentivize foreclosing on delinquent loans rather than incurring the high costs of servicing them. Date stated that “[p]oor servicing practices have inflicted hardships on borrowers, investors, and the economy as a whole.” Remedying the problem will require “[a] comprehensive approach to servicing that protects consumers, investors, the financial sector, and the housing market,” which can be accomplished through “the coordinated action of many federal regulators.” Date did not provide a projected date for the unveiling of the new servicing standards.