Analysts Warn on Perils of CFPB Guidance on Servicing Transfers

In appropriate cases the Consumer Financial Protection Bureau plans to continue its Big Brother approach to customer-disputed loss mitigation cases subject to mortgage servicing transfers.

Bulletin 2013-1 warns residential mortgage servicers and subservicers that CFPB examiners will not be looking only at their compliance with federal law, but will also focus on specific areas of their servicing transfer plans.

The move, according to Ballard Spahr's mortgage banking group analysts, is another response to the "significant number” of servicing problems reported by consumer complaints and noted by the CFPB examiners.

Servicers need be aware of this "advance notice" analysts wrote.

It states that “in appropriate cases,” the CFPB will require servicers engaged in significant servicing transfers to submit written plans “detailing how they will manage the associated consumer risks."

The guidance notes the CFPB intends to use the plans to "assess consumer risks and inform further examination planning." Servicers are required to create “a customer-service plan that responds to loss mitigation requests and inquiries” and identify pending loss mitigation cases.

Further, analysts note, the guidance warns servicers that the CFPB "will take appropriate supervisory and enforcement actions" to address federal law violations and "seek all appropriate corrective measures, including remediation of harm to consumers."

The CFPB reminds servicers they must comply with the Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act and prohibitions on unfair, deceptive, or abusive acts or practices.

Servicers should not be misled by the fact that even though the Equal Credit Opportunity Act is “a major focus of the CFPB's Mortgage Servicing Examination Procedures,” the guidance does not mention it specifically, analysts note. “They should expect CFPB examiners to also “test their operations for ECOA compliance, including their processing and handling of loan modifications.”

The CFPB plans to use its discretion to determine what specific information needs be included in a particular servicing transfer plan, analysts explain, and lists seven information requirements including a description of how the transferee will identify and correct information errors.

According to the guidance, CFPB examiners will focus on three main areas starting with information transfer processes, to ensure servicers have compatible systems or tools that allow the transferee to receive data and “avoid a servicing interruption.”

Examiners will review data processing after customer files are transferred to another servicer or subservicer to ensure the servicing platform reflects accurate loan-level information and conducts post-transfer data audits.

Plus, “to prevent service interruptions for loans transferred during the loss mitigation process” the CFPB requires servicers to implement certain policies and procedures.

The new servicer is expected to identify all loans in loss mitigation and confirm receipt of related information and documents, including loss mitigation history and previous loss mitigation agreements and documents. In addition, the transferee must implement “proper application of payments” when the loan is modified or during collections.