The Consumer Financial Protection Bureau ("CFPB") recently warned servicers that it will be using its supervisory authority to ensure that a mortgage servicer has the appropriate policies and procedures in place to protect consumers during residential mortgage servicing transfers. The CFPB is focused on ensuring that information is quickly and accurately transferred to the new servicer and that there is minimal disruption in servicing, especially as it relates to a consumer's loss mitigation efforts.
On February 11, 2013, the CFPB issued a bulletin advising residential mortgage servicers and subservicers (collectively "servicers") of their responsibilities to protect consumers during loan transfers between servicers. The CFPB has identified certain consumer complaints which will be the focus of the CFPB's supervisory activities in determining servicer transfer compliance. Of particular concern to the CFPB are consumer complaints relating to service interruption during the loss mitigation process due to servicer transfer and servicers failing to honor the terms of trial loan modifications agreed to by predecessor servicers. The CFPB's examiners will be assessing the policies, procedures and systems that are in place to address the risks to consumers in connection with any servicing transfer. Examiners will be closely determining how a transferor and transferee servicer prepare and handle the transfer of servicing rights and files. This inquiry will include determining what steps the transferor takes in ensuring that information is transferred in a way that is compatible with the transferee's system, whether adequate information is being supplied to ensure an unnecessary interruption in servicing, and how the transferor intends to quickly and accurately respond to inquiries from the transferee. Similarly, the CFPB will examine what procedures the transferee has to identify any loss mitigation that is in place at the time of transfer, what due diligence is performed to ensure the transferee conveys accurate loan and balance information to consumers, and what post-transfer audits the transferee conducts to confirm all data is properly transferred. For loans that are in the loss mitigation process, the CFPB will focus on what procedures are in place to ensure:
that the transferee receives information regarding which loans are in any state of loss mitigation prior to transfer;
any information relating to loss mitigation applications, agreements and history are received by the transferee;
the transferee properly applies payments and considers applicable modification agreements prior to demanding payment; and
the servicers accurately inform the borrower of the status of any loss mitigation application at the time of transfer.
In certain circumstances, the CFPB will require servicers engaged in significant servicing transfer to prepare and submit written plans to the CFPB detailing how these consumer risks will be managed. Regardless of this requirement, the CFPB made it clear that the servicers will not need approval before moving forward with servicing transfers.
Members of Saul Ewing's Consumer Financial Services Practice can help servicers make sure they are complying with the new servicing rules and regulations that are scheduled to go into effect on January 10, 2014, as well as other federal laws applicable to servicers, including the Real Estate Settlement Procedures Act (RESPA), the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), and the general prohibitions on unfair, deceptive or abusive acts or practices (UDAAPs). Contact either of the authors for more information.