CFPB issues critical report on bank and non-bank mortgage servicing

The Consumer Financial Protection Bureau yesterday issued this report "detailing mortgage servicing problems at banks and nonbanks. The
report also found that many nonbanks lack robust systems for ensuring
they are following federal laws." (quoting press release) According to the CFPB's press release, the agency found

  • Sloppy account transfers: The rights to manage a
    loan are frequently bought and sold among servicers. With these
    transfers among institutions, the CFPB discovered several risks that can
    cause consumers to miss payments, delay important processes, or affect
    the good standing of a mortgage borrower’s loan. For example, examiners

    • Disorganized and unlabeled paperwork, including important loss mitigation documents
    • Failures by mortgage servicers to tell consumers when the servicing of the loan is transferred to another company; and
    • A lack of protocols related to the handling of key documents, such as trial modification agreements.
  • Poor payment processing: Servicers are responsible
    for processing loan payments and handling tax and insurance payments
    through escrow accounts. If they do not perform their duties correctly,
    it can result in extra costs and hassles for the consumer. In its exams,
    the CFPB found:

    • Inadequate notice to borrowers of a change in address to send payments, resulting in late payments;
    • Excessive delays in handling the cancellation of private mortgage insurance payments, resulting in late fees; and
    • Property taxes being paid later than expected, resulting in
      borrowers’ inability to claim a tax deduction for the year they planned.
  • Loss mitigation mistakes: Servicers are also
    responsible for helping qualified struggling borrowers with alternative
    plans for repayments, if such plans are available. So when servicers
    fall short of their responsibilities, consumers can be sent to
    foreclosure unnecessarily. CFPB examiners discovered several problems,

    • Inconsistent communications with borrowers, giving them conflicting instructions for loss mitigation processes;
    • Inconsistent loss mitigation underwriting, waiving certain fees and interest charges for some borrowers but not others;
    • Long application review periods, making the loss mitigation process
      especially hard on consumers whose accounts are also dual-tracked for
    • Incomplete loan files, making it challenging for consumers to find
      out about their loan modification applications when they call the
      servicer for help;
    • Poor procedures for requesting missing or incomplete information
      from consumers, making it difficult for consumers to provide the correct
      documentation; and
    • Deceptive communications to borrowers about the status of loan
      modification applications, leading some consumers to faster foreclosure.

Danielle Doulgas at the Washington Post has more here.

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