CFPB Updates Mortgage Servicing Examination Procedures

CFPB Releases Special Edition of Supervision Highlights and Updates Mortgage Servicing Exam Procedures
June 22, 2016  the Consumer Financial Protection Bureau (CFPB) released a special edition supervision report focused specifically on mortgage servicers. The report found that some mortgage servicers continue to use failed technology that has already harmed consumers, putting the company in violation of the CFPB’s new servicing rules.

View the Special Edition of Supervision Highlights

In its examinations covering numerous mortgage servicers since the new CFPB rules took effect in January 2014, CFPB examiners have found violations because of deficient technology and process breakdowns. Specifically, examiners have observed problems with loss mitigation and servicing transfers. To spur industry in its general compliance with CFPB rules, the Bureau is also releasing an updated mortgage servicing exam manual.

The CFPB has put in place new rules that require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments, and correct errors on request. The rules also include protections for struggling homeowners, including those facing foreclosure. Compliance with many of these requirements necessitates strong policies and procedures related to systems and technology.

Highlighted are mortgage servicing problems observed by CFPB examiners:

Information about loan modifications is late, incorrect, or deceptive due to technological breakdowns or malfunctions
CFPB examiners found problems with loan modification acknowledgement notices, including sending them too late and having incorrect information or deceptive statements. Examiners found one or more servicers failed to send any acknowledgement notices due to a repeated processing platform malfunction over a significant period of time. These breakdowns caused delays in converting trial modifications to permanent modifications, resulting in harm to borrowers.

Consumers get the runaround when loans transfer to a new servicer with incompatible computer systems
The rights to manage a loan are frequently bought and sold among servicers. Transferring loans during the loan modification process heightens risks to consumers, including the risk that documents and information might not be accurately transferred to the new servicer. CFPB examiners found that a number of servicers had incompatible technology platforms that led, in part, to the new servicers failing to identify and honor modification agreements already in place.

Where CFPB examiners find violations of law or other significant problems or weaknesses, they alert the institutions to their concerns and outline necessary remedial measures. When appropriate, the CFPB opens investigations for potential enforcement actions. The CFPB expects all entities under its supervision to respond to customer complaints and identify major issues and trends that may pose broader risks to their customers.

Mortgage Servicing Exam Procedures
The CFPB regularly publishes a mortgage servicing chapter of the CFPB Supervision and Examination Manual to reflect regulatory changes, to make technical corrections, and to update examination priorities.  June 22, 2016 the CFPB released a third update to its exam procedures. The exam procedures offer valuable guidance to financial institutions and mortgage companies on what the CFPB will be looking for in its exams. Among other things, mortgage servicers should note a greater emphasis in exams on the following:

Complaint handling and requests by troubled borrowers:
The CFPB has enhanced the section related to consumer complaints to highlight that examiners will be reviewing whether the servicer has an adequate process for expedited evaluation of complaints or information requests from borrowers facing foreclosure. The possibility of foreclosure puts even more weight on the importance of an appropriate complaint escalation process, which is essential to any compliance management system.

Discrimination issues
The CFPB is conducting targeted reviews of mortgage servicers’ compliance with fair lending laws. This includes looking at those servicers that are creditors, such as those that participate in a credit decision about whether to approve a mortgage loan modification. These reviews include making sure creditors do not discriminate in any aspect of a credit transaction because of race, color, religion, national origin, sex, marital status, age, income coming from a public assistance program, or an applicant’s exercise of certain consumer protection rights.