No more Mr. Nice Guy.
That was the message that the Consumer Financial Protection Bureau's No. 2 sent to mortgage servicers attending an industry conference on Wednesday. Steven Antonakes, the agency's deputy director, said that servicers have had more than a year to prepare for a reform rule that took effect last month and suggested the CFPB would move quickly and harshly against violators.
Antonakes acknowledged that the agency has previously suggested it would be tolerant of mortgage servicing companies so long as they were making a "good faith effort" to comply with the rule, but he warned that such allowances only extend so far.
"A good faith effort, however, does not mean servicers have the freedom to harm consumers," Antonakes said. "It has felt like 'Groundhog Day' with mortgage servicing for far too long...Please understand, business as usual has ended in mortgage servicing. Groundhog Day is over."
Antonakes' speech was a clear sign that the agency has shifted from its previous message of forbearance to a more hard-lined stance regarding the mortgage servicing rule, which went into effect Jan. 10. (The speech was limited just to servicing, and did not appear directed at bankers still seeking to comply with other new regulations, such as the qualified mortgage and ability to repay rules governing underwriting.)
"My message to you today is a tough one," Antonakes said in prepared remarks before the Mortgage Bankers Association's National Mortgage Servicing Conference in Orlando. "I don't expect a standing ovation when I leave. But I do want you to understand our perspective."
Antonakes defended the rule, saying servicers have had months to bring themselves into compliance and that the agency has made changes in response to industry complaints.
"Servicers have had more than a year now to work on implementation," Antonakes said. "We put out plain-language summaries of the rules and posted video guidance...In addition, as we became aware of critical operational or interpretive issues with our rules, we addressed them."
The speech also made it clear that CFPB officials are frustrated with the mortgage servicing industry's lack of progress in cleaning up its mistakes. It is still widely regarded as rampant with issues, including poor documentation practices, wrongful foreclosures on homeowners and resale problems that make it nearly impossible for borrowers to track down their loan.
More than five years after the financial crisis, Antonakes noted that one in 10 homeowners are still underwater on their mortgages and that "two million households are at high risk of foreclosure."
"Nearly eight years have passed and I remain deeply disappointed by the lack of progress the mortgage servicing industry has made," he said. "In fairness, there have been some improvements. Since 2007 nearly 6.8 million loans have been modified. But despite these advances too many customers continue to receive erratic and unacceptable treatment. Our nation's mortgage servicers manage a debt portfolio of nearly $10 trillion for millions of American homeowners. This kind of continued sloppiness is difficult to comprehend and not acceptable. It is time for the paper chase to end."
The new mortgage servicing rule requires clearer monthly statements and stricter timelines in responding to borrowers. It also bans servicers from dual tracking loan modifications and foreclosure procedures, as well as using force-placed insurance as a regular practice rather than a last resort.
Antonakes said the CFPB would be paying "exceptionally close attention" in making sure servicers send all the information and documents of a loan when it's transferred to another servicer.
"We're going to hold you to that. Servicing transfers where the new servicers are not honoring existing permanent or trial loan modifications will not be tolerated," he said. "There will be no more shell games where the first servicer says the transfer ended all of its responsibility to consumers and the second servicer says it got a data dump missing critical documents."