CFPB issues guidance on making mortgage servicing transfers 'seamless'
The Consumer Financial Protection Bureau said it will consider “good-faith efforts” by mortgage servicers to prevent consumer harm and comply with regulations in the event that a government agency requests a servicing transfer.
The agency released an 18-page bulletin Friday with examples of practices that servicers may deem in compliance with Regulation X. The regulation requires servicers to maintain procedures “reasonably designed” to ensure that information and documents are transferred to another servicer in a timely manner.
Although the CFPB said it began developing the guidance before the coronavirus pandemic, the issue of servicing transfers has drawn more attention lately with the economic fallout of the virus outbreak.
Earlier this month, the head regulator of the government-sponsored enterprises Fannie Mae and Freddie Mac said the two companies may transfer servicing rights away from firms experiencing financial troubles because homeowners are missing their mortgage payments. While officials have allowed borrowers to seek loan forbearance plans, servicers must still send advances of principal interest to investors in mortgage-backed securities.
"We’ve seen that we can transfer servicing in a way that’s not too disruptive," Mark Calabria, director of the Federal Housing Finance Agency, was quoted as saying in an article published in HousingWire.
Since 2014, when Regulation X mortgage servicing rules took effect, the CFPB has found weakness in how some servicers manage transfers.
“Consumers should experience a seamless process when their mortgage servicer changes,” CFPB Director Kathy Kraninger said in a press release. “The guidance we released today will facilitate a well-functioning mortgage servicer transfer process, providing a roadmap for servicers that will prevent consumer harm. The guidance provides insights the CFPB has gained through years of supervisory and enforcement work to oversee compliance with regulations updated after the financial crisis.”
Mortgage servicers collect principal and interest payments on behalf of borrowers but government entities such as Fannie and Freddie may require the transfer of servicing to another entity if certain requirements are not being met.
The CFPB said it intends to focus any supervisory feedback for institutions, if needed, on “identifying issues, correcting deficiencies, and ensuring appropriate remediation for consumers.”
Servicers are required to provide all information and documents in their possession when transferring servicing including a unique identifier for each loan, the terms of the loan, current unpaid principal balance as of a specific date, information concerning any escrow, and copies of any loss mitigation applications submitted by a borrower and of any loss mitigation agreements agreed to with a borrower.
The CFPB said it will take into consideration the challenges servicers may face from the coronavirus pandemic including operational and time constraints related to servicing transfers.
The bureau said servicers should develop a servicing transfer plan, engage in quality control work to validate any data that is transferred and determine servicing responsibilities for legacy accounts.
Other examples of compliance include conducting a post-transfer review, monitoring consumer complaints and loss mitigation performance metrics, and identifying loans in default, foreclosure or forbearance agreements.