CFPB Releases Report on Mortgage Servicing Problems
August 22, 2013
Aug. 22, 2013
The Consumer Financial Protection Bureau (CFPB) released a report detailing mortgage servicing problems found at both banks and nonbanks. The report also found that many nonbanks lack robust systems for ensuring they are following federal laws.
Mortgage Servicing Problems
Since the CFPB launched its supervision program, it has focused much of its work on mortgage servicing. Mortgage servicers are responsible for collecting payments from mortgage borrowers on behalf of loan owners. They also typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures. In supervising both bank and nonbank servicers, CFPB examiners have uncovered problems that can be harmful to consumers. These include:
- Sloppy account transfers: The rights to manage a loan are frequently bought and sold among servicers. With these transfers among institutions, the CFPB discovered several risks that can cause consumers to miss payments, delay important processes, or affect the good standing of a mortgage borrower’s loan. For example, examiners found:
- Disorganized and unlabeled paperwork, including important loss mitigation documents
- Failures by mortgage servicers to tell consumers when the servicing of the loan is transferred to another company
- A lack of protocols related to the handling of key documents, such as trial modification agreements
- Poor payment processing: Servicers are responsible for processing loan payments and handling tax and insurance payments through escrow accounts. If they do not perform their duties correctly, it can result in extra costs and hassles for the consumer. In its exams, the CFPB found:
- Inadequate notice to borrowers of a change in address to send payments, resulting in late payments
- Excessive delays in handling the cancellation of private mortgage insurance payments, resulting in late
- Property taxes being paid later than expected, resulting in borrowers’ inability to claim a tax deduction for the year they planned
- Loss mitigation mistakes: Servicers are also responsible for helping qualified struggling borrowers with alternative plans for repayments, if such plans are available. So when servicers fall short of their responsibilities, consumers can be sent to foreclosure unnecessarily. CFPB examiners discovered several problems, including:
- Inconsistent communications with borrowers, giving them conflicting instructions for loss mitigation processes
- Inconsistent loss mitigation underwriting, waiving certain fees and interest charges for some borrowers but not others
- Long application review periods, making the loss mitigation process especially hard on consumers whose accounts are also dual-tracked for foreclosure
- Incomplete loan files, making it challenging for consumers to find out about their loan modification applications when they call the servicer for help
- Poor procedures for requesting missing or incomplete information from consumers, making it difficult for consumers to provide the correct documentation
- Deceptive communications to borrowers about the status of loan modification applications, leading some consumers to faster foreclosure.
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Posted in Compliance.