Consumer Financial Protection Bureau Outlines Mortgage Loan Transfer Process to Prevent Consumer Harm
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today outlined practices to provide mortgage servicers clarity, facilitate compliance, and prevent harm to consumers during the transfer of residential mortgages.
A mortgage servicer typically collects and processes loan payments on behalf of the owner of the mortgage note, conducts escrow-related processes, and handles loss mitigation, as appropriate. Servicing transfers are common and may occur in several ways. The mortgage owner may sell the rights to service the loan, the owner of the loan may hire a vendor–typically called a sub-servicer to take on the servicing duties–or the entity that owns the loan may outright sell the mortgage loan as an asset.
As consumers do not have a choice with respect to the transfer of servicing, compliance with regulatory requirements is especially important in risk mitigation and preventing consumer harm. Examples of practices that servicers may consider as contributing to compliance include:
- Developing a servicing transfer plan that includes a communications plan, testing plan (for system conversion), a timeline with key milestones and an escalation plan for potential problems;
- Engaging in quality control work after a transfer of preliminary data to validate that the data on the transferee's system matches the data submitted by the transferor;
- Determining servicing responsibilities for legacy accounts including tax reporting, credit bureau reporting and other questions that may arise;
- Conducting a post-transfer review or de-brief to determine effectiveness of the transfer plan and whether any gaps have arisen that require resolution; and
- Monitoring consumer complaints and loss mitigation performance metrics. The CFPB emphasizes the importance of post-transfer monitoring to ensure that transferred data is complete, accurate and functional for the transferee.
- Identifying any loans in default, active foreclosure and bankruptcy or any forbearance agreements entered in with the borrower. Where applicable include loss mitigation activity for each loan, including status and notes pertaining to the loss mitigation action.
“Consumers should experience a seamless process when their mortgage servicer changes. The guidance we released today will facilitate a well-functioning mortgage servicer transfer process, providing a roadmap for servicers that will prevent consumer harm,” said CFPB Director Kathleen L. Kraninger. “The guidance provides insights the CFPB has gained through years of supervisory and enforcement work to oversee compliance with regulations updated after the financial crisis.”
Since 2014 when significant changes to Regulation X mortgage servicing rules took effect, the CFPB has found weakness in how some servicers manage mortgage transfers. When transferring a loan, servicers should have policies and procedures reasonably designed to transfer all of the information and documents in their possession or control relating to a transferred mortgage loan, such as, a unique identifier for each loan, the terms of the loan, current unpaid principal balance as of a specific date, information concerning any escrow, and copies of any loss mitigation applications submitted by a borrower and of any loss mitigation agreements agreed to with a borrower. Such actions can prevent consumer harm, for example, ensuring there is no lag in paying the borrower’s taxes and insurance from escrow accounts.
The CFPB began developing this guidance well before the coronavirus pandemic, in consultation with interagency and intergovernmental partners. Recognizing the particular challenges that entities may face as a result of the pandemic, if a servicing transfer is requested or required by a federal regulator or by the security issuer of “Government Loans,” the CFPB intends to consider such challenges, including operational and time constraints related to the transfer, and to be sensitive to good-faith efforts demonstrably designed to transfer the servicing without adverse impact to consumers. The CFPB intends to focus any supervisory feedback for institutions, if needed, on identifying issues, correcting deficiencies, and ensuring appropriate remediation for consumers.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.