CFBP releases report detailing continuing failures with Mortgage Servicing System
The Consumer Financial Protection Bureau (“CFPB”), the financial watchdog agency created following the 2008 financial crisis to protect consumers from unfair, deceptive, and abusive practices in the financial products and services industry, has released a report detailing a host of continuing problems with the handling of mortgages by the country’s major mortgage servicers.
The report, based on examinations conducted by the CFPB between November 2012 and June 2013, highlight failures in fundamental activities, such as sloppy payment processing and account transfers between banks that can result in extra fees for homeowners, and significant shortcomings in handling loans on which borrowers had trouble making payments.
Examples included failing to give homeowners proper notification of a change in the address to which mortgage payments needed to be sent, charging borrowers default fees that were supposed to be paid by investors who had purchased the loans, and botching tax payments the servicer was supposed to deposit on behalf of borrowers.
The CFPB report also focused heavily on problems with loss mitigation programs in which a servicer attempts to limit bank losses and avoid foreclosures when borrowers have trouble making payments. The CFPB report cited inconsistent fees and interest charges, unreasonably long review periods, and missing documents as major problems, as well as incomplete and disorganized files.
While problems are wide-spread throughout the industry, big banks and major servicing companies account for a large share
While the CFPB did not disclose the names of the servicers it reviewed, citing confidentiality rules, bureau officials said the report is based on examinations of a range of companies of various sizes across the country. The mortgage-servicing industry is dominated by Wells Fargo, JPMorgan Chase, and Bank of America, which account for roughly 40 percent of the industry according to an analysis by Inside Mortgage Finance. Nonetheless, the CFPB also examined non-bank servicing firms, and found that many of those smaller firms lacked robust systems for compliance management.
New resources offer guidance
The CFPB said that in all of the cases where it found mortgage servicing problems, the agency’s examiners told the company how to remediate the problems and opened investigations when appropriate. The CFPB also offered guidance to non-banks that lacked proper policies and procedures, detailing what steps they should take. Indeed, in its effort to help the financial industry comply with new mortgage rules designed to protect consumers, the CFPB has published the 2013 CFPB Dodd-Frank Mortgage Rules Readiness Guide. It has also released the CFPB Supervision and Examination Manual, the guide used by CFPB’s examiners in overseeing companies that provide consumer financial products and services.
For loan originators facing repurchase and indemnification demands, this latest CFPB report highlights once again the importance of confirming the facts behind any demand, and digging into the paperwork to determine exactly what went on with any particular loan or borrower. In addition, the various guidance documents and materials provided by the CFPB should help both servicers and originators comply with applicable rules and regulations and develop policies and procedures to benefit both themselves and consumers.