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A recent spate of large loan servicing transfers has prompted the Consumer Financial Protection Bureau (CFPB) to issue a bulletin advising servicers about their obligation to consumers during such moves.  Through public feedback and its supervision activities, the CFPB has noted a significant number of servicing complications related to the large amount of servicing transfers that have occurred in the last year.  Because of its supervisory authority over both banks and nonbanks CFPB said it is reminding everyone in the mortgage servicing industry to minimize the risks that these servicing transfers can present to consumers.

Transfers of loans should not mean that paper work or loss mitigation plans are lost or that homeowners are hindered in any way from preventing an unnecessary foreclosure CFPB said and warned that servicers engaged in significant servicing transfers should expect the Bureau will, in appropriate cases, require them to prepare and submit informational plans describing how they will be managing the related risks to consumers.  

"Consumers should not be collateral damage in the mortgage servicing transfer process," said CFPB Director Richard Cordray. "This guidance directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of such transfers, and makes clear that we will be monitoring them for compliance."

Mortgage servicing transfers are common and occur when a mortgage owner sells the right to service its loans or when the owner outsources the servicing duties. These transfers can be logistically challenging, sometimes involving moving of hundreds of thousands of loan documents. They can also be positive for consumers, especially when investors move loans to specialty companies offering better service.  They can also be disruptive as consumers must deal with a new company and its forms and paperwork, different staff, and addresses for payments.   If the transfer process is not handled properly, consumers may find that their servicer lost important loss mitigation documents or that the servicer did not properly credit payments.

CFPB says it will be taking a close look at how the servicer has prepared for the transfer to ensure no unnecessary disruption either to payment processing or any loss mitigation activity in process and how the new servicer responds to customer inquiries related to the transfer and  providing relevant information about the loans.

Because owners of the loan establish loan modification requirements CFPB says it should not matter who is servicing the loan and customers who have reached an agreement on loan modification with the old servicer should have those plans honored by the new one. CFPB will be examining whether the new servicer properly considers any previous agreements before demanding payments or collecting amounts due.

While new mortgage servicing rules that govern servicing transfers that were announced last month do not go into effect until January 2014, CFPB reminded servicers that they are subject to federal laws such as: the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and prohibitions on unfair, deceptive, or abusive acts or practices.

The Federal Housing Finance Agency (FHFA) issued a statement following release of the bulleting saying that it supports CFPB's efforts to improve servicer compliance with transfer rules.  FHFA, it said, shares the goal of improving servicer performance and has played an active role in aligning the policies of Fannie Mae and Freddie Mac to streamline servicer processes and expedite outreach to borrowers to prevent foreclosures, keep homes occupied and help maintain stable communities."

CFPB's bulletin can be read in its entirety here.

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