CFPB Finds Mortgage Servicing Problems

The CFPB released a report on Wednesday detailing problems it has discovered among bank and nonbank mortgage servicers, and describing a lack of compliance management systems at nonbanks.

The report did not differentiate between credit unions and banks under the CFPB’s supervisory authority, but aspects of the report were especially critical of non-banks.

Bureau Director Richard Cordray said, “Our examinations of banks and nonbanks allow us to correct problems before more consumers are affected. 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.”

The report broke up the mortgage servicing problems documented by bureau examiners into the following categories: “sloppy” account transfers, poor payment processing, and loss mitigation mistakes. The report said consumers often can miss payments due to disorganized paperwork and communication failures on the part of the servicer, which can affect the good standing of the consumers’ loans. Also, the loss mitigation mistakes detailed in the report led to unnecessary foreclosures because of servicers who, among other mistakes, failed to complete loan files, request missing information from consumers, and to apply fee and interest charge waiving protocol consistently.

The CFPB report also details a dearth of compliance management systems in nonbanks, which it attributes to the fact that many nonbanks were not subject to federal or state examinations prior to the Dodd-Frank Act. The bureau’s release said, “The CFPB found that often individual branches of a business were looking out for relevant federal laws without an overarching system in place at the company. This creates a lack of consistency in following the laws across products and across locations.”

The CFPB has followed up with the institutions where they found problems or inconsistencies, and in some cases has opened investigations for possible enforcement actions.

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