Mortgage servicers and subservicers should consider reviewing the August 19, 2014 bulletin from the Consumer Financial Protection Bureau (CFPB) on mortgage servicing transfers to ensure compliance with the most up-to-date guidance. This bulletin replaces the February 2013 bulletin on the same topic, incorporating the January 10, 2014 revisions to Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA). For servicers who have fully implemented the CFPB’s February 2013 guidance and the new servicing rule, we do not expect the information in the new bulletin to require significant changes to policies and practices. Rather, the bulletin may provide a useful set of benchmarks and reminders.
The CFPB reminds servicers that it expects them to maintain “a robust Compliance management System” (CMS). A robust CMS must “ensure that violations of Federal consumer financial law do not occur during a transfer” and “contain mechanisms for promptly identifying and remediating any violations of Federal consumer financial law that do occur.” The bulletin is particularly helpful for interpreting those requirements of the new servicing rule that bear on mortgage servicing transfers, such as error resolution procedures (12 C.F.R. § 1024.35), force-placed insurance (12 C.F.R. §§ 1024.37 and 1024.17(k)), and loss mitigation (12 C.F.R. § 1024.41).
Indeed, the bulletin places special emphasis on the effect of mortgage servicing transfers on pre-transfer loss mitigation efforts. CFPB examiners list the following practices as “indicating that a servicer’s policies and procedures are not reasonably designed to achieve the rule’s objective of facilitating the transfer of information during mortgage servicing transfers or properly evaluating” applications for loss mitigation:
- Failure to identify loans that were “in a trial or permanent modification with the prior servicer” when transferred;
- Failure to “honor trial or permanent modification offers” without independent confirmation that the prior servicer’s modification offer was proper or that “the offered modification met investor criteria;” and
- Failure of transferee servicer to obtain all necessary information.
These practices, according to the CFPB, subjected some borrowers to “substantial delays” and led to new modifications with “inferior terms.”
Servicers should also note that the CFPB has warned that in “appropriate cases,” it will “require servicers engaged in significant servicing transfers to prepare and submit written plans to the CFPB” in advance of the transfer. Servicers without a robust CMS should consider devoting resources toward developing one now to avoid regulatory and litigation costs down the line.