Problems Linger in Mortgage Servicing, CFPB Says in Supervisory Highlights Report
By Mike Ferullo
Jan. 30 –A report from the Consumer Financial Protection Bureau (CFPB) says that mortgage servicing issues remain a top concern for the consumer watchdog agency, years after they first gained national attention in the immediate aftermath of the financial crisis.
The CFPB’s supervisory work completed between July and October 2013 uncovered the same sort of mortgage servicing problems that occurred in 2009 and 2010, as banks were overwhelmed with record numbers of home foreclosures caused by the crisis, according to an agency report released Jan. 30.
The report said servicers violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s ban on unfair, abusive or deceptive acts and practices in a handful of areas, such as payment processing, the transfer of servicing rights and providing borrower information to consumer credit reporting bureaus.
“Problems in mortgage servicing have plagued consumers for years and helped contribute to the financial crisis,” CFPB Director Richard Cordray said in a statement. “Taking action against mortgage servicing practices that harm consumers is a key priority for the CFPB. Especially under the detailed protections of our new rules, we expect servicers to clean up their act and provide responsible customer service.”
New CFPB regulations, which took effect Jan. 10, mandate a host of new procedures for banks and nonbank mortgage servicing firms to follow as they handle mortgage payments, manage past-due loans, offer potential assistance to troubled borrowers and process foreclosures (25 BBLR 127, 1/24/13).
The agency has been using its Dodd-Frank authority to examine nonbank mortgage servicing operations in the same manner that it supervises banks. The CFPB reached a settlement in December with the nation’s largest nonbank servicer, Ocwen Financial Corp, which agreed to pay more than $2 billion to mortgage borrowers who may have been harmed by mortgage servicing errors (26 BBLR 25, 1/2/14).
$2.6 Million Paid Out
The Jan. 30 report said that the bureau often resolves mortgage servicing concerns without an enforcement action. Between July and October 2013, nonpublic supervisory actions and self-reported violations resulted in $2.6 million in remediation to consumers, according to the agency.
The rights to manage a loan are frequently bought and sold among servicers. The CFPB said its examiners found that two servicers engaged in unfair practices by failing to honor borrower loan modifications that had been made by the previous loan servicers.
The CFPB said loan payment processing also remains an issue, including the handling of tax and insurance payments through escrow accounts. One servicer told borrowers that they would receive refunds from their escrow accounts, when in fact they would not, according to the report.
The CFPB said examiners also found cases where servicers misreported short sales as foreclosures, which have a much more negative impact on a consumer’s credit report.
Servicers Advised to Self-Exam
David Adler, a partner with JonesDay in Cleveland, said his law firm has been advising mortgage servicers to do a self-exam before the CFPB does. He said that self-exams are particularly important for mortgage servicers that have been the subject of borrower complaints, “even if not a lot of complaints.”
“The CFPB identified mortgage servicing practices as a high priority agenda item–essentially warning the industry that this would be one of the CFPB’s areas of significant focus during examinations,” he told Bloomberg BNA. “The report reflects that the CFPB made good on its warning”.
Adler expects that loan transfers and servicers’ communications with borrowers will continue to be areas of focus for the CFPB.
“The area of loan modifications is a significant minefield because the regulations are complex and servicers and borrowers appear to have a hard time understanding them,” he added.
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