Residential MortgageCompliance Monitor

CFPB Monitors Mortgage Servicing Transfer Activity

by: Anna DeSimone

CFPB warns bank and nonbank servicers about legal protections for consumers when transferring loans

The Consumer Financial Protection Bureau (CFPB) issued a bulletin in February 2013 advising mortgage companies about their legal obligations that protect consumers during loan transfers between mortgage servicers.  The bureau advises, when handing over the processing of loans, mortgage servicers should not lose paperwork, lose track of a homeowner’s loss mitigation plans, or hinder a consumer’s chances of saving their home from unnecessary foreclosure. The CFPB has a heightened concern about these practices given the large number and size of recent servicing transfers.

The 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 the CFPB will be monitoring them for compliance. The CFPB plans to make servicing transfer-related problems a focus of its supervisory activities. If servicers are not fulfilling their obligations under the law, the CFPB will take appropriate actions to address these violations and seek all appropriate corrective measures, including remediation of harm to consumers.

The guidance also informs the industry that the CFPB will be taking a close look at:

How a servicer has prepared for the transfer of servicing rights or responsibilities. This includes what steps the servicer is taking to ensure there is no unnecessary disruption to consumers. CFPB examiners will also be focused on how, after the transfer, the new servicer plans to respond to consumer inquiries about the transfer and whether employees are trained to handle consumer questions and complaints. CFPB examiners will look for what the new servicer is doing to provide consumers accurate information about their loans, such as the amount they owe, the status of their loss mitigation application or plan, and their delinquency status, if relevant.

How the new servicer handles the files it receives through a transfer. If a consumer’s paperwork and relevant documents are not handed over to the new servicer, a struggling homeowner attempting to stay in the home may be forced to restart their loss mitigation process. This can be frustrating, costly, and, in the worst cases, can mean the difference of keeping and losing a home.

What policies the servicers have to prevent borrower harm for loans with loss mitigations in process. Because owners of the loans, not servicers, establish loan modification program requirements, it should not matter who is servicing the loan. Consumers who have come to an agreement through their servicer on a loan modification should have those plans honored by the new servicer. The CFPB will focus on whether the new servicer properly considers any previous agreements before demanding or collecting amounts due. When previous plans are not honored, consumers have to start the process for saving their home all over again, and that could lead to unnecessary foreclosure.
  
Protections under Federal Law

The CFPB advises mortgage servicers that its examiners will be carefully reviewing servicers’ compliance with federal laws applicable to servicing. These may include, among others, the Real Estate Settlement Procedures Act (RESPA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), and prohibitions on unfair, deceptive, or abusive acts or practices (UDAAPs).

The FCRA provides protection for consumers by prohibiting the furnishing of information to a consumer reporting agency that the furnisher knows or has reasonable cause to believe is inaccurate. A servicer that furnishes information to consumer reporting agencies must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information furnished considering applicable federal guidelines and must periodically review the policies and procedures and update them as necessary to ensure their continued effectiveness. The FCRA also gives consumers the ability to dispute credit reporting information with consumer reporting agencies and directly with their furnishers. Servicers, like other furnishers, must appropriately investigate such disputes.

The FDCPA imposes obligations on servicers to the extent they act as debt collectors within the meaning of the FDCPA. Among other obligations, the FDCPA requires that within five days after the initial communication with a borrower in connection with collecting a debt, a debt collector must send the borrower a notice including the amount of the debt, to whom the debt is owed, the borrower’s right to request verification of the debt, and other required information. The FDCPA also prohibits deceptive representations, the use of unfair or unconscionable means, and abusive conduct in debt collection.

In addition to the notice requirements and other consumer protections described above, servicers must avoid engaging in UDAAPs. The CFPB emphasizes that conduct that does not violate one of the specific prohibitions in the laws discussed above may nonetheless constitute a UDAAP.

Further Actions 

If the CFPB determines that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate Federal consumer financial laws and regulations, it will take appropriate supervisory and enforcement actions to address violations and seek all appropriate corrective measures, including remediation of harm to consumers.

Areas of Focus 

CFPB examiners will assess risks to consumers in connection with servicing transfers. During the course of supervision, examiners are assessing the policies, procedures, systems, and controls that servicers have established to address the risks to consumers in connection with servicing transfers. Moreover, examiners are assessing whether mortgage servicers are adequately staffed and are ensuring that their employees are trained to handle consumer communications in the context of servicing transfers.


  
The CFPB advises servicers that examiners will direct particular attention to the following areas in connection with servicing transfers:
  
1. How a transferor servicer has prepared for the transfer of servicing rights and/or responsibilities, including:
  

a. What steps it takes before the transfer to ensure that information is transferred in a manner that is compatible with the transferee’s servicing system;

b. What procedures it had in place, before the transfer, to ensure that it would provide adequate information to the transferee servicer to facilitate that servicer’s complying with its obligations without unnecessary interruption in servicing; and

c. In what manner and how timely, after the transfer, the transferor intends to respond to inquiries from the transferee or the consumer about transferred loans. 

  
2. How a transferee servicer handles the files transferred to it, including:
  
a. What due diligence the transferee performs to ensure that it conveys accurate information to consumers, including, for example, information regarding amounts they owe and their delinquency status, if applicable;
  
b. What procedures the transferee had in place to identify loss mitigation in process (e.g.,trial or permanent modifications, forbearance plans, or short sale/deed-in-lieu agreements) at the time of transfer;
  
c. What due diligence the transferee performs to ensure that the servicing platform or other systems it employs accurately reflect all account-level information including, for example, fees assessed to a borrower’s mortgage loan account;
  
d. What training the transferee conducts to ensure that all staff who will have operational access to the servicing platform are able to interpret, operate, manage, access, and utilize the transferred loan information; and
  
e. What post-transfer audits the transferee servicer conducts to confirm that all data were properly transferred, and whether the transferee servicer corrects any identified errors.
  
3. For loans with loss mitigation in process (e.g.,pending loss mitigation applications, trial modifications, forbearance plans, or short sale/deed-in-lieu agreements), what policies the transferor and transferee implemented, including what procedures they adopted to ensure that:
  
a. The transferee receives information regarding which loans are in any state of loss mitigation prior to the effective date of the transfer;  
  
b. The transferor sends, and the transferee receives, loss mitigation applications, financial documents, previous loss mitigation history (e.g., borrower failed a loan modification previously) and executed copies of prior servicers’ loss mitigation agreements and documents;
  
c. The transferee is properly applying, after transfer, payments due under an applicable loan modification agreement or other applicable payment modification agreement;
  
d. The transferee properly considers applicable loan modification or forbearance agreements before demanding or collecting amounts due;
  
e. The transferee has documented circumstances in which it will require new supporting documentation from the borrower to be considered for a trial modification or converted to a permanent modification; and
  
f. The transferor or transferee accurately informs the borrower of the status of any loss mitigation application that remains pending at the time of transfer.  
 
Plans for Handling Servicing Transfer
 
As part of its efforts to focus supervisory attention on the topics described above, the CFPB will, in appropriate cases, require servicers engaged in significant servicing transfers to prepare and submit written plans to the CFPB detailing how they will manage the associated consumer risks. The CFPB will use these plans to assess consumer risks and inform further examination planning. Servicers do not need approval from the CFPB before moving forward with servicing transfers.  
  
The CFPB provides this guidance today to give servicers advance notice that it may require such plans in the course of its supervisory activities. What information should be included in the plan would depend on the circumstances of the particular transfer.  
  
In general, however, the CFPB will want information regarding:
  1. The number of loans involved in the transfer;
  2. The total servicing volume being transferred (measured by unpaid principal balance);
  3. The name(s) of the servicing platform(s) on which the transferor stored all relevant account-level information for transferred loans prior to transfer and information about compatibility with the transferee’s systems;  
  4. A detailed description of the transaction and system testing to be conducted to ensure accurate transfer of electronic information and a description of the summary report to be generated as a result of this testing;
  5. A description of how the transferee will identify and correct errors identified in connection with the transfer, including a specified time period for reviewing files and resolving errors;
  6. A description of the training plan and actual training materials for staff involved in reviewing, assessing, utilizing, or communicating information regarding the transferred loans;
  7. A customer-service plan specific to the transferred loans that provides for responding to loss mitigation requests or inquiries and identifying whether a loan is subject to a pending loss mitigation resolution or application.

In January 2013, the CFPB announced new mortgage servicing rules that included rules obligating servicers to maintain certain policies and procedures when transferring loans. The new rules go into effect in January 2014. Refer to our Compliance Monitor article authored by Vice President and Senior Counsel Gregory R. Wilson, Esq. 
http://bankersadvisory.blogspot.com/2013/01/cfpb-finalizes-mortgage-servicing-rules.html

, CFPB, Federal Mortgage Regulations, Mortgage Servicing | Comments Off on CFPB Monitors Mortgage Servicing Transfer Activity

  • 781-402-6415

Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.

Comments are closed.

Subscribe to Blog   

Residential Mortgage Compliance Monitor is an educational resource for financial institutions, providing announcements, legislative summaries, and policy changes issued by state and national regulators. Announcements also cover mortgage lending rules of HUD, Fannie Mae, Freddie Mac, and other mortgage agencies.