WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today outlined its initial approach to supervising mortgage servicers to ensure they comply with federal consumer financial protection laws.
“Mortgage servicing has a huge impact on consumers and is a priority for the CFPB,” said Raj Date, Special Advisor to the Secretary of the Treasury on the CFPB. “The mortgage servicing market has been bogged down by widespread reports of pervasive and profound consumer protection problems. We are going to take a close and measured look at whether servicers are following the law.”
Mortgage servicers typically are responsible for collecting payments from the mortgage borrower on behalf of the owner of that loan. They also typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures on behalf of the owner of a mortgage loan. In the vast majority of cases, consumers do not choose their mortgage servicer. Mortgage servicing rights can be, and frequently are, bought and sold among servicers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the CFPB supervision authority over a large number of mortgage servicers, allowing the agency to assess whether the servicers are following the law. The Mortgage Servicing Examination Procedures released today by the CFPB describe the types of information that the agency’s examiners will gather to evaluate mortgage servicers’ policies and procedures, assess whether servicers are in compliance with applicable laws, and identify risks to consumers in servicing operations.
Reports by other federal agencies have indicated that, starting with the financial crisis and continuing to today, some servicers have failed to keep pace with an overall increase in mortgage delinquencies. Among other things, these reports found that some servicers lost important documentation, experienced well-publicized problems with foreclosure processing, and failed to communicate effectively with consumers — letting telephone calls routinely go unanswered. There have also been reports that, because of widespread delays and errors in the processing of transactions, some borrowers who qualify for loan modifications have not received them in time to stop foreclosure.
The CFPB will focus initially on loans in default where consumers are struggling to make payments. CFPB examiners will be looking to make sure that information provided to consumers about loan modifications and foreclosures is timely and transparent. For example, examiners will review:
- The loan modification application process to make sure the servicer is providing information about alternatives to foreclosure that is accurate, prominent, and clear;
- The process for referring a loan to foreclosure to confirm that the borrower is actually in default and all of the necessary records have been carefully reviewed; and
- The fees charged to borrowers in default to make sure they are not duplicative or otherwise illegal.
The CFPB will be conducting examinations of mortgage servicing practices as part of its supervision program. The Mortgage Servicing Examination Procedures are a part of the more comprehensive CFPB Supervision and Examination Manual, also released today. The broader manual is the field guide for examiners to be used in supervising both depository institutions and other consumer financial services providers. The CFPB has authority to examine the more than 100 large banks, thrifts, and credit unions that have assets over $10 billion, and their affiliates. These institutions collectively hold a substantial majority of the banking industry’s assets.
Generally, CFPB supervision will be an ongoing process of pre-examination scoping and review of information, data analysis, onsite examinations, and regular communication with supervised entities and prudential regulators, as well as follow-up monitoring. When necessary, examiners will coordinate and work closely with CFPB’s enforcement staff to take appropriate enforcement actions to address harm to consumers.
Read the Mortgage Servicing Examination Procedures: www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/mortgage-servicing-examination-procedures/