Many mortgage servicers are still doing a poor job with record keeping, payment processing and other basic services a report issued by the Consumer Financial Protection Bureau (CFPB) said this week. The report detailing mortgage servicing problems at banks and nonbanks also found that many of the latter lack robust systems for ensuring they are following federal laws.
CFPB says that since it launched its supervision program it has focused much of its work on mortgage servicing and has uncovered problems with both bank and nonbank servicers that can be harmful to consumers. These include:
- Sloppy account transfers. In examining transfers of servicing rights between institutions CFPB found risks that can cause consumers to miss payments, delay important processes or affect the good standing of a borrower's loans. Among the problems uncovered in examinations were failure to notify consumers their loans were being transferred, disorganized and unlabeled paperwork, and a lack of protocols for handling key documents such as modification agreements.
- Poor Payment processing including inadequate notice to borrowers of address changes for payment processing, excessive delays in handling cancellation of private mortgage insurance payments resulting in late fees; improper handling of property tax payments which could result in consumers losing the income tax deduction in a given year.
- Loss mitigation errors which, if uncorrected could result in consumers being sent into foreclosure. Examiners found instances of inconsistent communication with borrowers including faulty procedures for requesting information and deceptive communication about loan modification status; inconsistent loss mitigation underwriting and imposition of fees and interest charges; incomplete loan files; long review periods for loss mitigation applications resulting in stress for consumers, especially those dual-tracked for foreclosure
Where the Bureau found servicing problems it notified the company, specified remedial measures, and where appropriate opened investigations for enforcement actions. It also directed servicers to perform appropriate corrective actions such as reimbursing improper fees, reviewing loss mitigation decisions, conducting periodic testing of areas of concern and reporting to CFPB on compliance progress.
Perhaps because many nonbanks had not be subject to federal or even state examinations prior to the existence of CFPB the Bureau found many nonbanks lacking robust compliance management systems. For example, in larger companies compliance was being attempted at individual branches without an overarching system within the company. This caused erratic treatment of consumer problems and allowed the root causes of regulatory violations to go undetected.
Many nonbanks also lacked formal policies and procedures that detailed compliance responsibilities and instructed employees on executing them. It was also common for companies to have forgone independent consumer compliance audits.
"Our examinations of banks and nonbanks allow us to correct problems before more consumers are affected," said CFPB Director Richard Cordray. "Today's report highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that nonbanks are following federal law. Fixing both is a priority for us."
