CFPB Warns Lenders On HMDA, Servicers On ‘Failed Technology’

The Consumer Financial Protection Bureau (CFPB) recently sent letters to 44 mortgage lenders and mortgage brokers warning them that they might not be in compliance with the reporting requirements established under the Home Mortgage Disclosure Act (HMDA).

Apparently, these institutions are failing to report either some or all of the required data. The letter, however, emphasizes that none of the 44 lenders named has been determined to be in violation just yet.

“Financial institutions that fail to report mortgage information as required make it harder to identify and address discriminatory lending,” Richard Cordray, director of the bureau, says in a statement. “No mortgage lender that is required to report their loan data can avoid this responsibility.”

More than half of the letter (see sample here) simply explains what the HMDA rules are and why certain lenders must report. It recommends that recipients review their practices to ensure they comply with all relevant laws. Lenders that do less than $25 million in origination volume annually are exempt from reporting – and it is possible that some of the 44 lenders are on the threshold of being exempt.

New reporting requirements under HMDA will take effect starting on Jan. 1, 2018, with full reporting of all data required by March 2019.

Meanwhile, on the servicing side of the business, the CFPB recently gave a stern warning to mortgage servicers that some of them need to update their technology in order to properly comply with the bureau’s recently updated mortgage servicing rules.

During the Mortgage Bankers Association’s recent Annual Convention and Expo in Boston, Cordray said that although most servicers have done a great job of “staffing up” in order to meet new compliance mandates, “many troubling issues persist.”

“While we applaud the investments made in compliance by certain servicers, others have not yet made satisfactory progress,” Cordray told the crowd of mortgage bankers and technology vendors. “Outdated and deficient servicing technology continues to put many consumers at risk. This problem is made worse by a lack of training to use [the] technology effectively. Needless errors impose harm to consumers facing delinquency or engaged in loss mitigation processes. These shortcomings can become chronic when servicers do not implement proper system testing and auditing processes.”

Cordray said in order to “spur needed improvements in servicer compliance,” the bureau will be requesting “specific and credible plans from servicers describing how their information technology systems will be upgraded and improved to resolve these issues effectively.”

“At the same time, we will be working alongside [the] industry to make sure the updated servicing rules we recently finalized, which generally will take effect in October 2017, are implemented effectively,” he added. “These rules clarify certain issues; allow more flexibility in some areas; strengthen foreclosure protections; and add some important new consumer safeguards for servicing transfers, for successors-in-interest and for borrowers who are in bankruptcy.”

In June, the CFPB released research showing that mortgage servicers are still struggling to comply with the mortgage servicing rules that took effect in January 2014, in part, because they are using “failed technology.”

In reviews undertaken since the mortgage servicing rules took effect, CFPB examiners have discovered a wide variety of violations, including misrepresentations of terms, fees and deadlines for modifications; errors in mortgage servicing rights transfers; failure to send out notices in a timely fashion; and, at times, failing to communicate with borrowers completely, the bureau reports.

Although many of these servicers have since taken corrective action, certain others continue to struggle. These servicers will likely be asked for “action plans” to show that they have the processes, software and systems in place in order to meet compliance.

“Mortgage servicers can’t hide behind their bad computer systems or outdated technology,” Cordray said in a statement in June. “There are no excuses for not following federal rules. Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.”

To help servicers meet compliance, the CFPB has released an updated version of its Supervision and Examination Manual “to reflect regulatory changes, to make technical corrections and to update examination priorities.”


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