The Consumer Financial Protection Bureau's (CFPB) gloves are apparently off – and ‘Groundhog Day’ for mortgage servicers is over.
Steven Antonakes, deputy director of the CFPB, on Wednesday told a crowd of mortgage servicers that although some of them have made great strides in terms of complying with the CFPB's new servicing rules, which went into effect Jan. 10, he is nonetheless ‘deeply disappointed by the lack of progress the mortgage servicing industry has made’ since the financial crisis began nearly eight years ago.
‘There are encouraging signs with unemployment decreasing and the economy growing,’ Antonakes, a career financial regulator who joined the CFPB in September, said during his keynote during the Mortgage Bankers Association's National Mortgage Servicing Conference & Expo 2014 in Orlando. ‘However, many homeowners continue to struggle. Nationwide, one in ten homeowners remain underwater and two million households are at a high risk of foreclosure. Our work is far from over."
During his speech, Antonakes implied that many of the mistakes and misdeeds that servicers were responsible for, pre-crisis, continue today – despite implementation of the bureau's strict rules designed to protect consumers from such activities.
‘We recognize that servicers play a critical role in the mortgage market,’ Antonakes said. ‘Servicers collect and apply payments to loans. When necessary, they can work out modifications to the terms of a loan. And they handle the difficult foreclosure process. Because of all these things that servicers do, their effects on borrowers and communities can be profound.’
Antonakes said when he was a state regulator in Massachusetts, ‘I saw firsthand how breakdowns in the foreclosure process can create chaos. Wrongful foreclosures are disruptive: homes were lost forever, families wrenched from their communities, children lost their friends, and the biggest financial asset for that family was taken with a process that sometimes ended with a sheriff.
‘Of course, along with consumer harm, our court systems were clogged with frequently incomprehensible paperwork,’ he added. ‘Property values plummeted to the point that neighborhoods were torn apart by foreclosures, not unlike if a tornado had ripped through them. It is hard to overstate how painful this has been.’
He pointed out that consumers don't have a choice as to which mortgage servicer they use, so if they ‘are dissatisfied with their servicer, they have no opportunity to switch over to another provider.’
‘This fundamental disconnect became starkly revealed during the financial crisis,’ he said. ‘When the tsunami of delinquencies hit, servicers were unprepared to work with borrowers. The existing low-cost, high-volume servicing model was ill equipped to help individual homeowners deal with their problems. People did not get the support they needed, such as timely and accurate information about their options for saving their homes. Servicers failed to answer phone calls, lost paperwork, and mishandled accounts. Consumers missed out on much-needed help due to the repeatedly inadequate service.
‘Communication and coordination were so poor that many consumers thought they were on their way to a solution, only to find their homes being foreclosed upon,’ he added. ‘Sometimes people arrived home to find they had been unexpectedly locked out. Sometimes people found themselves stuck in a nightmare of lost paperwork even as the clock ticked on toward foreclosure.’
These problems, he said, ‘have been commonplace since delinquencies first began increasing over eight years ago’ – however he acknowledged that they are occurring on a much smaller scale.
‘In fairness, there have been some improvements,’ Antonakes said. ‘Since 2007, nearly 6.8 million loans have been modified. But despite these advances too many customers continue to receive erratic and unacceptable treatment. Our nation's mortgage servicers manage a debt portfolio of nearly $10 trillion for millions of American homeowners. This kind of continued sloppiness is difficult to comprehend and not acceptable. It is time for the paper chase to end.’
Antonakes pointed out that many of these errors continue despite the fact that servicers ‘had more than a year now to work on implementation’ of the CFPB's servicing rules.
‘We put out plain-language summaries of the rules and posted video guidance,’ he said. ‘We issued readiness guides. And, we worked with our fellow regulators to publish inter-agency procedures on the new rules to familiarize industry stakeholders with our expectations.’
He said although many servicers have made a "good faith effort," the remaining high degree of errors has made his job as a regulator feel like ‘Groundhog Day,’ in reference the popular comedy starring Bill Murray, with the same mistakes occurring over and over.
‘Please understand, business as usual has ended in mortgage servicing,’ Antonakes concluded. ‘Groundhog Day is over.’
To read Antonakes' full speech, click here.
