After two years of supervision and examinations of mortgage servicers by the Consumer Financial Protection Bureau (CFPB) the agency has criticized the industry's level of compliance and issued an updated mortgage servicing exam manual. CFPB said, two years of examinations have convinced the agency that some servicers "continue to use failed technology that has already harmed consumers, putting the company in violation of the CFPB's new servicing rules."
New servicing rules which took effect in January 2014, arose out of experiences during the Great Recession when millions of borrowers fell behind in their mortgage payments and CFPB says, "many servicers were unable to provide the level of service necessary to meet homeowners' needs." Even before the crisis "the mortgage servicing industry at times experienced problems with bad practices and sloppy recordkeeping."
The rules require servicers to maintain accurate records, give troubled borrowers an easier path for communicating with appropriate staff, promptly credit payments, and correct errors on request. The rules also include protections for struggling homeowners, including those facing foreclosure.
Compliance with many of these requirements necessitates strong policies and procedures related to systems and technology and CPBS blames the current problems on servicers' failure to develop and/or update them. Its examiners have observed problems in particular with loss mitigation and with servicing transfers.
CFPB reports that there have been some investments in compliance but they have not been sufficient across the marketplace. Examiners have found that several servicers "lack proper training, testing, and auditing of their computer systems and software platforms and those of their service providers."
Examiners found that information about loan modifications could be late, incorrect, or deceptive due to technology breakdowns or malfunctions. This caused delays in converting trial modifications to permanent ones. There were also incidents where consumers got "the runaround" when their loans were transferred to a new servicer with an incompatible computer system. CFPB examiners found loan transfers between servicers often fail to include accurate communication of relevant information and have led to new servicers failing to identify and honor previous modification agreements.
CFPB also noted that some servicers have made significant improvements under the new rules, in part by enhancing and monitoring their service platforms, staff training, coding accuracy, auditing, and allowing for greater flexibility in operations.
CFPB's updated Examination Manual offers guidance to financial institutions and mortgage companies on what examiners will be looking for in exams. Among other things, mortgage servicers should note examiners placing a greater emphasis on the following:
- Reviews of whether the servicer has an adequate process for expedited evaluation of complaints or information requests from borrowers facing foreclosure.
- Targeted reviews of mortgage servicers' compliance with fair lending laws. This includes looking at those servicers that are creditors, such as those that participate in a credit decision about whether to approve a mortgage loan modification, making sure creditors do not discriminate in any aspect of a credit transaction because of race, color, religion, national origin, sex, marital status, age, income coming from a public assistance program, or an applicant's exercise of certain consumer protection rights.
"Mortgage servicers can't hide behind their bad computer systems or outdated technology. There are no excuses for not following federal rules," said CFPB Director Richard Cordray. "Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally."
The updated mortgage servicing exam procedures is available at: http://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/mortgage-servicing-examination-procedures/
