CFPB Issues Bulletin Regarding Mortgage Servicing Transfers
By Anna DeSimone
August 19, 2014 the Consumer Financial Protection Bureau (CFPB) released a bulletin outlining expectations for mortgage servicers that transfer loans. The bulletin includes information on how mortgage servicers should pay special attention to new rules protecting consumers applying for loss mitigation help or trial modifications.
The bulletin gives examples of some things CFPB examiners will look for when loans are transferred. In particular, CFPB examiners will carefully scrutinize transfers of loans with pending loss mitigation applications or approved trial and permanent modification plans. Examples of good practices by servicers include flagging those loans and taking special care to ensure that all relevant documents are transferred in a timely manner.
Mortgage servicers are responsible for collecting payments from mortgage borrowers on behalf of loan owners. They also typically handle customer service, escrow accounts, collections, loan modifications, and foreclosures. Generally, borrowers have no say in choosing their mortgage servicers. Servicing transfers among servicers are common and may occur in several ways. The mortgage owner may sell the rights to service the loan. In some case the owner of the loan may hire a sub-servicer rather than servicing the loan itself.
The CFPB advises mortgage servicers that its examiners will be carefully reviewing servicers’ compliance with Federal consumer financial laws applicable to servicing transfers. These may include, among others, the RESPA and its implementing regulation, Regulation X, the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, the Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, the Fair Debt Collection Practices Act (FDCPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions on unfair, deceptive, or abusive acts or practices (UDAAPs).
Compliance to New Rules
In January 2014, the CFPB’s new mortgage servicing rules took effect, aimed to protect mortgage borrowers from runarounds by their servicers. Servicers are now required to maintain accurate records, promptly credit payments, and correct errors on request. The new regulations also require servicers to maintain policies and procedures to facilitate the handover of information when a servicer transfers a loan to a new company.
CFPB mortgage servicing examinations now include reviews for compliance with the new servicing rule. Among other things, the rule requires servicers to maintain policies and procedures that are reasonably designed to achieve the objective of facilitating the transfer of information during mortgage servicing transfers.
The following are examples of policies and procedures that CFPB examiners may consider in future examinations as contributing to meeting these requirements:
- Ensuring that contracts require the transfer or to provide all necessary documents and information at loan boarding.
- Developing tailored transfer instructions for each deal and conducting meetings to discuss and clarify key issues with counterparties in a timely manner; for large transfers, this could be months in advance of the transfer. Key issues may include descriptions of proprietary modifications, detailed descriptions of data fields, known issues with document indexing, and specific regulatory or settlement requirements applicable to some or all of the transferred loans.
- Using specifically tailored testing protocols to evaluate the compatibility of the transferred data with the transferee servicer’s systems and data mapping protocols.
- Engaging in quality control work after the transfer of preliminary data to validate that the data on the transferee’s system matches the data submitted by the transferor.
- Recognizing when the transfer cannot be implemented successfully in a single batch and implementing alternative protocols, such as splitting the transfer into several smaller transactions, to ensure that the transferee can comply with its servicing obligations for every loan transferred.
In future examinations, CFPB examiners may also consider the following post-transfer policies and procedures, among others, for transferee servicers as contributing to meeting this requirement:
- Implementing a post-transfer process for validating data to ensure it transferred correctly and is functional, as well as developing procedures for identifying and addressing data errors for inbound loans.
- Effectively organizing and labeling incoming information, as well as ensuring that the transferee servicer uses any transferred information before seeking information from borrowers.
- Conducting regularly scheduled calls with transferor servicers to identify any loan level issues and to research and resolve those issues within a few days of them being raised.
About the Author
Anna DeSimone is President and Founder of Bankers Advisory and Principal of CliftonLarsonAllen LLP. She can be reached at anna@bankersadvisory.com
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.
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