Mortgage Servicers Have Issues According to CFPB

Many mortgage servicers are still doingrna poor job with record keeping, payment processing and other basic services arnreport issued by the Consumer Financial Protection Bureau (CFPB) said this week.  The report detailing mortgage servicingrnproblems at banks and nonbanks also found that many of the latter lack robustrnsystems for ensuring they are following federal laws.   </p

CFPB says that since it launched itsrnsupervision program it has focused much of its work on mortgage servicing andrnhas uncovered problems with both bank and nonbank servicers that can be harmfulrnto consumers.  These include:</p<ul class="unIndentedList"<liSloppy account transfers. In examiningrntransfers of servicing rights between institutions CFPB found risks that canrncause consumers to miss payments, delay important processes or affect the goodrnstanding of a borrower’s loans. Amongrnthe problems uncovered in examinations were failure to notify consumers theirrnloans were being transferred, disorganized and unlabeled paperwork, and a lackrnof protocols for handling key documents such as modification agreements.</li<liPoor Payment processing includingrninadequate notice to borrowers of address changes for payment processing,rnexcessive delays in handling cancellation of private mortgage insurancernpayments resulting in late fees; improper handling of property tax paymentsrnwhich could result in consumers losing the income tax deduction in a givenrnyear.</li<liLoss mitigation errors which, ifrnuncorrected could result in consumers being sent into foreclosure. Examiners found instances of inconsistent communicationrnwith borrowers including faulty procedures for requesting information andrndeceptive communication about loan modification status; inconsistent lossrnmitigation underwriting and imposition of fees and interest charges; incompleternloan files; long review periods for loss mitigation applications resulting inrnstress for consumers, especially those dual-tracked for foreclosure</li</ul

Where the Bureau found servicing problems it notified the company,rnspecified remedial measures, and where appropriate opened investigations forrnenforcement actions.  It also directedrnservicers to perform appropriate corrective actions such as reimbursingrnimproper fees, reviewing loss mitigation decisions, conducting periodic testingrnof areas of concern and reporting to CFPB on compliance progress.</p

Perhaps because many nonbanks hadrnnot be subject to federal or even state examinations prior to the existence ofrnCFPB the Bureau found many nonbanks lacking robust compliance managementrnsystems.  For example, in largerrncompanies compliance was being attempted at individual branches without anrnoverarching system within the company. rnThis caused erratic treatment of consumer problems and allowed the rootrncauses of regulatory violations to go undetected.  </p

Many nonbanks also lacked formalrnpolicies and procedures that detailed compliance responsibilities andrninstructed employees on executing them. rnIt was also common for companies to have forgone independent consumerrncompliance audits. </p

“Our examinations of banks andrnnonbanks allow us to correct problems before more consumers are affected,” saidrnCFPB Director Richard Cordray. “Today’s report highlights both the mortgagernservicing problems throughout the industry and the challenges of making surernthat nonbanks are following federal law. Fixing both is a priority for us.”</p

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