How will new CFPB procedures impact your next servicing exam?
The Consumer Financial Protection Bureau just released their most recent edition of the Supervisory Highlights. This report covers the more important findings from CFPB examinations conducted between July 1, 2022 and March 31, 2023, and is intended to openly communicate compliance concerns in an anonymous manner. Although the CFPB’s focus is on compliance with Federal consumer financial law, as opposed to agency requirements, the findings that they deem to be engagement in Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) are extremely relevant to mortgage servicers in their efforts to secure operational and quality control excellence.
As QC Verify continues with our series on mortgage servicing, we would be remiss in not featuring the current findings that are of concern to the Bureau. Although this is part of our servicing series, the CFPB’s Supervisory Highlights are a great tool as they focus on defects and risks identified during examination of financial institutions in multiple areas, including origination and servicing.
These are typically findings where customized audit, analysis, and quality control can be extremely beneficial in identifying potential defects or policy violations that create operational risk for your business.
The most current edition highlighted mortgage servicing findings that examiners identified as UDAAP issues, and/or regulatory infractions falling under the Real Estate Settlement Procedures Act (RESPA/Regulation X) as follows:
Loss mitigation timing violations
All loss mitigation applications must be evaluated within thirty days of receipt and the available options must be presented to the borrower, provided the application was received more than 37 days prior to the scheduled date of foreclosure sale. Cited mortgage servicers failed to evaluate applications within the 30-day timeframe and some failed to provide a response. Additional delays occurred when servicers claimed applications were incomplete and subsequently delayed borrower access to relief options, sometimes for up to six months.
The report notes that servicers halted these practices and implemented policies and procedures to strengthen related activities. These are areas where timeline violations could have been tracked, audited, identified, and remedied without negatively impacting distressed borrowers.
Failure to provide critical loss mitigation information
Regulatory infractions were found when mortgage servicers failed to provide clear, accurate denial reasons, while stating that borrowers failed to meet loss mitigation eligibility criteria. Errors were also found that pertained to correct payment details and forbearance duration. Additionally, inaccurate information was disclosed in periodic statements as related to loss mitigation programs consented to by borrowers.
Servicers remedied these issues by updating letter templates and monitoring. Appropriate monitoring of activities, including program and payment details, could have been managed with meaningful audit and quality control practices, including regular reviews of borrower communications, and subsequently avoiding misrepresentation of borrower default options.
Failure to credit payment sent to prior servicer after transfer
Transfer of servicing has long been an area of CFPB concern due to the frequency of errors in this area that negatively impact borrowers. Exam findings during this period found infractions where mortgage servicers considered borrower payments to be late, even though they were received within the allowed 60-day regulatory timeframe. This applies to payments received within 60 days of the effective date of transfer, irrespective of the date funds are transferred from the previous servicer.
Mortgage servicers provided remediation to impacted borrowers and improved policies, procedures, training, and internal controls. All of these areas could have been updated as a part of regular quality control practices, additionally audit controls could have been implemented that monitored payment receipt date of recently transferred loans, avoiding this defect all together.
Failure to maintain policies and procedures reasonably designed to identify missing information after transfer
Policies and procedures are expected to be in place in an effort to prevent borrower impact during transfer of servicing. Specifically, mortgage servicers must make sure complete copies of all security lien instruments, or relevant documents needed to reestablish the security instrument, are secured as part of the transfer process. Exam findings showed violations of servicer policy and procedures, as well as failure to obtain or reestablish security instruments on transferred mortgages.
Remediation through policy and procedure updates and training was provided in response. The key being that adequate audit, quality control, and training could have avoided risk exposure and more importantly borrower impact during servicing transfer.
Preventing the need for remediation with preemptive audit and quality control
In each of the areas defined in the recent edition of Supervisory Highlights, mortgage servicers remediated primarily by updating policies, procedures, and providing training in the specified areas. These are areas that can be addressed before defects, regulatory infractions, and/or UDAAP issues occur with a meaningful third-party vendor relationship – A partnership with a third-party compliance management vendor that understands your business, provides technical innovation, and is a true partner. QC Verify takes pride in this level of relational partnership, offering the proven, sophisticated Mortgage Analysis Review Software (MARS) system and modern verification automation, in addition to industry expertise that can be leveraged when and where you need it.
Don’t miss our final mortgage servicing blog or take a moment and check out our earlier blogs in this series, where we have explored servicing in general, Fannie Mae and Freddie Mac updates, in addition to Federal Housing Administration (FHA) updates. QC Verify is here to help you explore current industry changes, while providing a specialized consultative approach to your audit and quality control practices. We offer a unique, client-focused approach that is driven by experience and innovation.
Visit QCVerify.com to realize the difference that a personalized QC provider can make in your organization, offering sophisticated technology with a human touch.