Mortgage Servicing Learning from Other’s Missteps
The increased influence of the CFPB on mortgage lending and servicing is becoming more evident with each passing day. The CFPB chronicles its supervisory efforts for public review in regular editions of its Supervisory Highlights publication. Supervisory Highlights discusses, at a high level, select CFPB examination findings and outcomes. Generally speaking, Supervisory Highlights is not topic specific; however, on June 22nd, the CFPB issued a special edition of its Supervisory Highlights which was dedicated solely to mortgage servicing. By issuing a topic specific edition, the CFPB is expressing its ongoing dissatisfaction with the mortgage servicing industry and concern for heightened risk to consumers. In this publication, the CFPB acknowledged that while the mortgage servicing industry has made investments in compliance since the implementation of the 2014 mortgage servicing rules, those investments have not been sufficient across the industry. The CFPB pinpoints outdated and deficient servicing technology, as well as a lack of proper training, testing and auditing of technology driven processes as contributing significantly to noncompliance.
The servicing Supervisory Highlights provides servicers, who have yet to be graced with the CFPB’s presence, an opportunity to avoid the encounter all together or at least be in the best position possible, if they come knocking on the door. The following items represent violations that have occurred multiple times by multiple servicers. If it can happen to them it can happen to you; so put these tasks on your to-do list.
1. Review loss mitigation acknowledgement notices for accuracy and timing. The CFPB discovered multiple servicers that were issuing late loss mitigation acknowledgment letters or in some cases not issuing the letter at all. It discovered that some servicers were sending, what it deemed to be, deceptive notices that did not contain accurate information, particularly with regards to the timing of foreclosure in relation to the processing of the loss mitigation application. It also found that multiple servicers were sending noncompliant loss mitigation acknowledgment letters that contained inaccurate or inapplicable requests.
2. Review loan modification letters to ensure they fully disclose if and when fees, charges, and advances will be assessed and what prerequisites, if any, the borrower must meet during the trial period to convert the modification to permanent status. The CFPB has found numerous incidents where the borrower could not understand the full ramifications of the loan modification because the servicer failed to provide clear and comprehensive disclosures and information about the modification. Be certain your borrower has a clear understanding of both the short and long term effects of the loan modification.
3. Review the timing of loss mitigation letters to ensure they are not being sent out after the response deadline has passed. This basic quality control measure can go a long way in helping to avoid an unfair practice.
4. Put in place procedures to ensure that all trial period modifications are being converted to permanent modifications in a timely manner and in accordance with the modification agreement. Failure to timely convert these accounts as agreed can result in inaccurate credit reporting and the accrual of additional interest, both of which are deemed unfair practices.
5. Review your loan modification agreements to ensure they do not require borrowers to waive their rights. Simple boilerplate language such as “borrower shall have no defenses, set-offs, or counterclaims to the indebtedness of borrowers pursuant to the loan document” may be problematic. If you are unsure, have an attorney review your modification agreement.
6. Review loss mitigation denial letters for accuracy and completeness. Make sure the letter includes the correct and specific reason(s) for the loan modification denial. A blanket statement, such as “not available,” will not be sufficient. Also, make sure that the denial notice communicates the borrower’s specific right to appeal the denial. Again, generic appeal language is not sufficient.
7. Review policies and procedures to ensure they can facilitate the following objectives: (a) provide borrowers with accurate and timely information and documents in response to a request for information; (b) promptly identify and communicate with the successor-in-interest upon the death of a borrower; (c) identify with specificity all loss mitigation options for which a borrower may be eligible; (d) provide personnel with prompt access to all documents and information submitted by a borrower in connection with a loss mitigation application; (e) evaluate a loss mitigation application for all options for which the borrower may be eligible; (f) share among personnel the accurate and current information regarding the evaluation of the loss mitigation application and the status of any foreclosure procedure; and (g) identify any documents that were not received during a transfer of servicing.
8. Prior to transferring servicing to or from other servicers, ensure the compatibility of each servicers platforms in order to prevent inaccurate or incomplete file transfers. Incompatible systems have caused incomplete transfers with missing documentation that have led subsequent servicers to fail to honor modifications agreed to by the previous servicer.
By reviewing these items and putting in place procedures that allow you to monitor your servicing platform for compliance weakness, you can take compliance from a defensive act to an offensive one, and stay ahead of what is seemingly an ever-changing landscape.
If you would like more detail on these items, the Supervisory Highlights can be found here. As always, if you have any questions or feel your operations may need some adjustments, please feel free to contact our firm.
Amanda J. Smith
Messick & Lauer P.C.