Many mortgage servicers are still doing
a poor job with record keeping, payment processing and other basic services a
report issued by the Consumer Financial Protection Bureau (CFPB) said this week. The report detailing mortgage servicing
problems at banks and nonbanks also found that many of the latter lack robust
systems for ensuring they are following federal laws.
CFPB says that since it launched its
supervision program it has focused much of its work on mortgage servicing and
has uncovered problems with both bank and nonbank servicers that can be harmful
to consumers. These include:
Sloppy account transfers. In examining
transfers of servicing rights between institutions CFPB found risks that can
cause consumers to miss payments, delay important processes or affect the good
standing of a borrower's loans. Among
the problems uncovered in examinations were failure to notify consumers their
loans were being transferred, disorganized and unlabeled paperwork, and a lack
of protocols for handling key documents such as modification agreements.
Poor Payment processing including
inadequate notice to borrowers of address changes for payment processing,
excessive delays in handling cancellation of private mortgage insurance
payments resulting in late fees; improper handling of property tax payments
which could result in consumers losing the income tax deduction in a given
Loss mitigation errors which, if
uncorrected could result in consumers being sent into foreclosure. Examiners found instances of inconsistent communication
with borrowers including faulty procedures for requesting information and
deceptive communication about loan modification status; inconsistent loss
mitigation underwriting and imposition of fees and interest charges; incomplete
loan files; long review periods for loss mitigation applications resulting in
stress for consumers, especially those dual-tracked for foreclosure
Where the Bureau found servicing problems it notified the company,
specified remedial measures, and where appropriate opened investigations for
enforcement actions. It also directed
servicers to perform appropriate corrective actions such as reimbursing
improper fees, reviewing loss mitigation decisions, conducting periodic testing
of areas of concern and reporting to CFPB on compliance progress.
Perhaps because many nonbanks had
not be subject to federal or even state examinations prior to the existence of
CFPB the Bureau found many nonbanks lacking robust compliance management
systems. For example, in larger
companies compliance was being attempted at individual branches without an
overarching system within the company.
This caused erratic treatment of consumer problems and allowed the root
causes of regulatory violations to go undetected.
Many nonbanks also lacked formal
policies and procedures that detailed compliance responsibilities and
instructed employees on executing them.
It was also common for companies to have forgone independent consumer
"Our examinations of banks and
nonbanks allow us to correct problems before more consumers are affected," said
CFPB Director Richard Cordray. "Today's report highlights both the mortgage
servicing problems throughout the industry and the challenges of making sure
that nonbanks are following federal law. Fixing both is a priority for us."