WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today issued a report highlighting problems like unfair and deceptive practices in the mortgage servicing market uncovered through the Bureau’s supervision program in 2013. The report also notes that, between July and October 2013, consumers received $2.6 million as result of overall non-public supervisory activities at the banks and nonbanks the CFPB oversees.
“Problems in mortgage servicing have plagued consumers for years and helped contribute to the financial crisis,” said CFPB Director Richard Cordray. “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.”
Mortgage servicers are responsible for collecting payments from the mortgage borrower and forwarding those payments to the owner of the loan. They handle customer service, collections, loan modifications, and foreclosures. Even before the financial crisis, the mortgage servicing industry at times experienced problems with bad practices and sloppy recordkeeping. As millions of borrowers fell behind on their loans because of the crisis, many servicers were unable to provide the level of service necessary to meet homeowners’ needs.
To address the shoddy mortgage servicing problems, the CFPB put in place new, common-sense rules designed to eliminate surprises and runarounds for homeowners. The rules, which went into effect on January 10, 2014, require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments, and correct errors on request. The rules also include new, strong protections for struggling homeowners, including those facing foreclosure.
The CFPB has made it a priority to address mortgage servicing problems through its supervision program. Today’s report includes supervision work completed between July and October 2013. It focuses on the problems uncovered in mortgage servicing, at a time when the CFPB’s new mortgage servicing rules were not yet in effect. The Bureau’s previous supervision report similarly highlighted mortgage servicing problems. Both reports make clear that mortgage servicing misconduct continued to plague consumers throughout 2013.
Today’s supervisory report describes several instances where servicers violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) ban on unfair, abusive or deceptive acts and practices such as:
- Unfair practices with servicing transfers: The rights to manage a loan are frequently bought and sold among servicers. Examiners found that two servicers engaged in unfair practices by failing to honor existing permanent or trial loan modifications after a servicing transfer, which resulted in borrowers being charged the wrong amount or being told to pay the wrong amount.
- Waiving consumer rights: CFPB examiners found that two servicers were requiring borrowers to waive any existing claims in order to get a forbearance or loan modification agreement. The examiners found these broad waiver clauses to be unfair as they were done without regard to individual circumstances.
- Poor payment processing: Servicers are responsible for processing loan payments and handling tax and insurance payments through escrow accounts. Examiners found that a servicer was marketing bi-weekly payment plans and misrepresenting how the plans worked. As a result, consumers did not save money the way they thought they would. Another servicer told some borrowers they would receive refunds from their escrow accounts, when in fact they would not.
- Failing to provide correct information to consumer reporting agencies: Mortgage servicers generally provide data to consumer reporting agencies. CFPB examiners found cases where servicers were misreporting short sales as foreclosures, which have a much more negative impact on a consumer’s ability to get certain types of credit.
In all cases where CFPB examiners found these mortgage servicing problems, they alerted the company to their concerns and specified necessary remedial measures. When appropriate, the CFPB opened investigations for potential enforcement actions. The CFPB has already taken enforcement action against the nation’s largest nonbank mortgage servicer, Ocwen, for its systemic misconduct at every stage of the mortgage servicing process. In December 2013, the CFPB ordered Ocwen to provide $2 billion in principal reduction to underwater borrowers and to refund $125 million to the nearly 185,000 borrowers who have already been foreclosed upon.
Under the Dodd-Frank Act, the CFPB supervises depository institutions and credit unions with total assets of more than $10 billion, and their affiliates. The Bureau also has authority to supervise certain nonbanks, regardless of size, like mortgage companies including originators, brokers, and servicers, and those nonbanks it defines as “larger participants” by rule. To date, the Bureau has issued rules for the debt collection, credit reporting, and student loan servicing markets. Additionally, the Bureau has proposed defining larger participants in the international money transfer market.
The Bureau often finds supervisory concerns that are resolved without an enforcement action. In this reporting period, non-public supervisory actions and self-reported violations resulted in $2.6 million in remediation to consumers.
With today’s report, the CFPB is also announcing that it is changing the format of supervisory reports in order to simplify them. The Bureau anticipates that these changes will reduce the amount of time between an examination and when the supervised institution receives the report.
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.