The Consumer Financial Protection Bureau (CFPB) has issued a bulletin advising mortgage companies about their legal obligations that protect consumers during loan transfers between mortgage servicers. When handing over the processing of loans, mortgage servicers should not lose paperwork, lose track of a homeowner’s loss mitigation plans, or hinder a consumer’s chances of saving their home from unnecessary foreclosure. The CFPB has a heightened concern about these practices given the large number and size of recent servicing transfers.
“Consumers should not be collateral damage in the mortgage servicing transfer process,” said CFPB Director Richard Cordray. “This guidance directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of such transfers, and makes clear that we will be monitoring them for compliance.”
Servicing transfers can be positive for consumers, especially when investors require non-performing servicers to transfer rights to specialty companies that offer better service. But mortgage servicing transfers can also mean consumers must deal with new companies to pay their bills—often with different-looking paperwork, different staff, and different addresses to send the payments. If the transfer process is not handled properly, consumers may find that their servicer lost important loss mitigation documents or that the servicer did not credit their payments on time.
Through public feedback and its supervision activities, the CFPB has noted a significant number of servicing complications related to the large amount of servicing transfers that have occurred in the last year. In many cases, banks have transferred the servicing of troubled loans to more specialized nonbank servicers. Because the CFPB has supervisory authority over both banks and nonbanks, it is reminding everyone in the mortgage servicing industry to minimize the risks that these servicing transfers can present to consumers.
“The Federal Housing Finance Agency (FHFA) supports the CFPB’s efforts to improve servicer compliance with legal requirements related to mortgage servicing transfers. FHFA shares the goal of improving servicer performance, which will result in better outcomes for both consumers and investors," said a statement from the FHFA. "FHFA has played an active role in aligning the policies of Fannie Mae and Freddie Mac to streamline servicer processes and expedite outreach to borrowers to prevent foreclosures, keep homes occupied and help maintain stable communities.”
Given that millions of borrowers have been impacted by servicing transfers, and given the prevalence of homeowners struggling to remain current on their mortgages, the CFPB will make servicing transfer-related problems a focus of its supervisory activities. If servicers are not fulfilling their obligations under the law, the CFPB will take appropriate actions to address these violations and seek all appropriate corrective measures, including remediation of harm to consumers.
The guidance also informs the industry that the CFPB will be taking a close look at:
►How a servicer has prepared for the transfer of servicing rights or responsibilities: This includes what steps the servicer is taking to ensure there is no unnecessary disruption to consumers. CFPB examiners will also be focused on how, after the transfer, the new servicer plans to respond to consumer inquiries about the transfer and whether employees are trained to handle consumer questions and complaints. CFPB examiners will look for what the new servicer is doing to provide consumers accurate information about their loans, such as the amount they owe, the status of their loss mitigation application or plan, and their delinquency status, if relevant.
►How the new servicer handles the files it receives through a transfer: If a consumer’s paperwork and relevant documents are not handed over to the new servicer, a struggling homeowner attempting to stay in the home may be forced to restart their loss mitigation process. This can be frustrating, costly, and, in the worst cases, can mean the difference of keeping and losing a home.
►What policies the servicers have to prevent borrower harm for loans with loss mitigations in process: Because owners of the loans, not servicers, establish loan modification program requirements, it should not matter who is servicing the loan. Consumers who have come to an agreement through their servicer on a loan modification should have those plans honored by the new servicer. The CFPB will focus on whether the new servicer properly considers any previous agreements before demanding or collecting amounts due. When previous plans are not honored, consumers have to start the process for saving their home all over again, and that could lead to unnecessary foreclosure.
In January 2013, the CFPB announced new mortgage servicing rules that included rules obligating servicers to maintain certain policies and procedures when transferring loans. The new rules go into effect in January 2014 and specify, for example, that mortgage servicers must be able to transfer documents and information in a timely manner. This includes information about the current status of discussions with a borrower on loss mitigation options, such as choices the lender is giving the borrower to work out an alternative mortgage payment plan.