Examiners from the Consumer Financial Protection Bureau soon will visit the servicing shops of the nation's largest banks to check on their handling of defaulted borrowers seeking loan modifications or entering the foreclosure process.
"Our examiners will look at mortgage servicing practices when they conduct their routine examinations," said Raj Date, who heads the new bureau which does not yet have a Senate-confirmed director.
As for exactly when the examiners might be arriving at the servicing shops, that's unclear.
"We are going to take a close and measured look at whether servicers are following the law, he added. (Officially, Date is the special advisor to the Secretary of the Treasury for the CFPB.)
Date told reporters Thursday that the servicing industry has "structural problems" that has under-invested in technology, people, and processes. "It's no surprise that servicers are plagued by pervasive and profound consumer protection issues."
Examiners will look specifically at the application process for loan modifications to make sure servicers are providing consumers with accurate and clear information about alternatives to foreclosure.
The process for referring loans to foreclosures will be reviewed to confirm that borrowers are "actually in default and all the necessary records have been carefully reviewed," according to the bureau.
In addition, examiners will check the fees servicers charge at-risk borrowers to make sure they are not "duplicative or otherwise illegal."
The CFPB has supervisory and enforcement powers over all servicers -- including independent mortgage bankers. However, Congress specifically empowered the bureau to conduct examinations of banks, thrifts and credit unions with more than $10 billion in assets and their affiliates.
The new bureau, which opened its doors in July, also released its "Mortgage Servicing Examination Procedures" manual on Thursday. "We want the companies we supervise to know what we expect. These expectations are not new -- most of them we inherited from the seven different federal agencies that handed consumer financial protection duties to us on July 21, when we officially opened," Date said.
