Helping borrowers hold mortgage servicers accountable
On Monday, the Consumer Financial Protection Bureau (CFPB) filed a friend-of-the-court (“amicus”) brief in McCoy v. Wells Fargo Bank, N.A., a case in which two mortgage borrowers sued their loan servicer for refusing to answer their questions about their loans. Wells Fargo argued that it is not required to answer these written questions from its borrowers despite clear obligations in federal law, and that is the issue now before the U.S. Court of Appeals for the Ninth Circuit.
In the modern mortgage market where the ownership of a loan frequently changes hands, borrowers often have only one place to turn to get needed information about their loans—their servicers. But loan servicers have few market incentives to respond to borrowers’ needs. Servicers are virtually always picked and paid by a loan’s owners or investors without any input from the borrower. That means market forces can leave servicers with significant incentives to skimp on serving their captive borrowers’ needs and even to hunt for opportunities to impose unreasonable fees for what should be routine assistance. When the 2008 financial crisis erupted, these dynamics had disastrous consequences. Mortgage borrowers often struggled to even get in touch with their loan servicers to get answers to questions, correct errors with their loans, or to discuss options for avoiding foreclosure.
After the financial crisis, Congress created the CFPB to protect consumers from abusive, deceptive, and unfair financial practices. One of the CFPB’s first rulemakings in 2013 was to reshape the mortgage servicing industry by amending Regulation X, the regulation that implements the Real Estate Settlement Procedures Act. Regulation X previously only expressly required loan servicers to respond to borrower requests for information relating specifically to servicers’ receipt of payments from borrowers and making of payments to the loan’s owners or other third parties, but the 2013 amendments gave mortgage borrowers the right under Regulation X to get a response from their servicer for almost any written question about their loans. This added important protections on top of Section 1034(c) of the Dodd-Frank Act, which Congress wrote to give people a right to obtain any information (with few exceptions) concerning their account – mortgage or otherwise – in the possession of large banks like Wells Fargo.
Unfortunately for the borrowers in this case, Wells Fargo allegedly ignored its obligation to answer their questions. Instead, Wells Fargo told them it wouldn’t answer because there was an ongoing lawsuit to foreclose on their homes. But a pending lawsuit does not take away a borrower’s right to a response from their loan servicer under Regulation X. When this case got to court, Wells Fargo didn’t even try to argue that it was entitled to ignore the borrowers’ requests because of the foreclosure proceedings.
Instead, Wells Fargo argued that even after the CFPB’s 2013 amendments, Regulation X didn’t require it to respond to the borrowers’ requests, which asked for things like transaction histories and the identities of their loans’ owners. According to Wells Fargo, Regulation X today just requires it to provide the same limited types of information that were expressly required prior to the 2013 rulemaking. In other words, Wells Fargo argues that the CFPB’s amendments to Regulation X didn’t do much at all to help borrowers get responses. But that’s not what Regulation X says, that’s not what the CFPB intended, and that’s not what mortgage borrowers need in the modern mortgage market. And even apart from Regulation X, banks like Wells Fargo have other legal obligations to give people information about their accounts.
People need a banking system that provides high-quality customer service, and banks should focus on relationship banking by treating customers fairly and attending to their needs. Mortgage borrowers too often struggle to get answers to their questions about their loans, and that can cause serious harm to consumers. Instead of a direct relationship between banks and their customers, the modern mortgage market is a complex web that often also involves securitized trusts and multiple servicers. It’s only fair that the same entity that takes the homeowner’s payments, usually the only entity in this complex web for whom the homeowner has any contact information, should also answer questions the homeowner has about their loan. Otherwise, many borrowers will have nowhere to turn to get information they need about their loans.
The CFPB filed its amicus brief to urge the Ninth Circuit to make sure mortgage borrowers can get the information they need.
The case is McCoy v. Wells Fargo Bank, N.A., No. 21-35892 (9th Cir.)