Just how far along are mortgage servicers in terms of complying with the Consumer Financial Protection Bureau's (CFPB) new rules?
According to a recent CFPB audit, not far along enough.
A new report from the agency, based on the results of ongoing audits, finds that many servicers still lack robust processes and systems for maintaining proper compliance with CFPB rules now in effect and coming in January.
‘Our examinations of banks and non-banks allow us to correct problems before more consumers are affected,’ Richard Cordray, director of the CFPB, says in a press release. ‘Today's report highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that non-banks are following federal law. Fixing both is a priority for us.’
Among the compliancy problems the CFPB uncovered through its investigation of numerous (unnamed) servicers are ‘sloppy account transfers,’ ‘poor payment processing’ and ‘loss mitigation mistakes.’
In particular, servicers are being sloppy with paperwork when buying and selling mortgages amongst each other, the report finds. These account transfer mistakes could result in the delay of certain processes, which, in turn, could result in borrowers' missing payments, thus impacting their good standing.
In their examination of account transfers, CFPB auditors discovered ‘disorganized and unlabeled paperwork, including important loss mitigation documents; failures by mortgage servicers to tell consumers when the servicing of the loan is transferred to another company; and a lack of protocols related to the handling of key documents, such as trial modification agreements.’
Servicers are also being sloppy when processing loan payments and handling tax and insurance payments through escrow accounts. Specifically, the CFPB found ‘inadequate notice to borrowers of a change in address to send payments, resulting in late payments; excessive delays in handling the cancellation of private mortgage insurance payments, resulting in late fees; and property taxes being paid later than expected, resulting in borrowers' inability to claim a tax deduction for the year they planned.’
Servicers could also be better when it comes to helping qualified struggling borrowers with alternative plans for repayments. CFPB examiners discovered several problems in this area, including ‘inconsistent communications with borrowers, giving them conflicting instructions for loss mitigation processes; inconsistent loss mitigation underwriting, waiving certain fees and interest charges for some borrowers but not others; long application review periods, making the loss mitigation process especially hard on consumers whose accounts are also dual-tracked for foreclosure; and incomplete loan files, making it challenging for consumers to find out about their loan modification applications when they call the servicer for help.’
Further, the CFPB uncovered ‘poor procedures for requesting missing or incomplete information from consumers, making it difficult for consumers to provide the correct documentation; and deceptive communications to borrowers about the status of loan modification applications, leading some consumers to faster foreclosure.’
Perhaps of greater concern is that the CFPB found that many servicers lack an overarching, company-wide strategy for complying with the new regulations. Rather, many servicers are addressing compliancy mandates in piecemeal fashion, typically on a department-by-department basis.
‘The CFPB found that often individual branches of a business were looking out for relevant federal laws without an overarching system in place at the company,’ the bureau states in its press release. ‘This creates a lack of consistency in following the laws across products and across locations. The result can be erratic treatment of consumer problems. It can also mean that root causes of regulatory violations go undetected.’
Further, many servicers lack written policies for implementing their compliancy requirements.
‘Not having formal, written documents that both detail consumer compliance responsibilities and instruct employees on the appropriate methods for executing these responsibilities can lead to inconsistencies, sloppy record-keeping and ultimately, consumer harm because nobody at the institution is clearly responsible to make sure laws are being followed,’ the CFPB states in its release.
The CFPB is urging servicers to routinely conduct quality-control checks by way of independent auditing firms.
‘A compliance audit program provides a board of directors or its designated committees with information about whether policies and standards are being implemented. Without such a program, it is difficult to recognize any significant deficiencies in an institution's compliance management system,’ the CFPB states.
The CFPB's release does not state how many servicing companies were audited or when, nor does it provide a range for their size. After the audits were completed, the CFPB notified the companies of the problems and specified necessary remedial measures. In addition, it opened investigations for potential enforcement actions when appropriate.
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