Consumer Financial Protection Bureau Will Scrutinize Consumer Protection During Mortgage Servicing Transfers
The Consumer Financial Protection Bureau ("CFPB") recently issued Bulletin 2013-01, which provides guidance to mortgage servicers on the CFPB's expectations concerning mortgage servicing transfers. A copy of the Bulletin is available here. The CFPB will assess mortgage servicers' transfer policies and procedures for violations of federal law and unfair and deceptive acts or abusive practices ("UDAAP"). In addition, although not effective until January 2014, Bulletin 2013-01 suggests that mortgage servicers adopt, or at the very minimum look toward, portions of the CFPB's Mortgage Servicing Rules under the Real Estate Settlement Procedures Act (Regulation X), issued January 17, 2013 (the "Final Rules") to obtain satisfactory results in CFPB examinations and to avoid UDAAP issues. A copy of the Final Rules is available here.
As part of this process, the CFPB plans to initiate supervisory examinations and may take "appropriate supervisory and enforcement actions" to address violations of applicable federal law. In certain cases, the CFPB may require servicers to prepare and submit written plans to the agency outlining how a servicer plans to minimize "associated consumer risks" in the transfers.
Focus for Supervisory Examinations
The CFPB identified particular areas of focus for examinations. CFPB examiners will assess whether mortgage servicers have implemented "policies, procedures, systems, and controls" to address the risks to borrowers in servicing transfers. The CFPB considers the risks to include transferring inaccurate account information, which could lead to improper credit reporting and debt collection, and failing to honor loss mitigation agreements made by the transferor servicer.
The CFPB will focus on policies and procedures, including controls, for the following issues:
- How a transferor servicer prepared to transfer accurate information, including analyses of its own and the transferee's systems to ensure compatibility, and how the transferor intends to respond to the transferee's data issues or questions;
- How the transferee servicer prepared to receive the transferred account information, including analyses of its ability to convey accurate information on its systems, and how the transferee planned to identify transferred accounts in loss mitigation, train staff to handle inquiries from transferred accounts, and test transferred data after conversion; and
- How both the transferor and transferee servicers planned to migrate loans in the loss mitigation process, including identification and exchange of information about those loans, and how the transferee planned to ensure that it correctly applies payments or collects amounts under loss mitigation agreements, updates borrowers in the loss mitigation process, and documents circumstances where the borrower must submit new information for a trial or permanent loan modification.
The Bulletin suggests that servicers can look to 12 C.F.R. 1024.38(b)(4) and accompanying interpretations of the Final Rules for guidance on how to adopt policies, procedures, and controls to satisfy examiner inquiries.
The CFPB will also examine servicers for potential UDAAP violations associated with mortgage servicing transfers. The Bulletin suggests that the failure to honor an agreed-upon trial or permanent loan modification, including properly applying payments or collecting debts under such a modification, may be considered a UDAAP violation. In addition, it is possible that an unnecessary lapse in servicing during the transfer could be considered a UDAAP violation if the customer suffers harm.
The CFPB also advises that it will focus on compliance with federal law in transferring servicing obligations, including the Real Estate Settlement Procedures Act ("RESPA"), the Fair Credit Reporting Act ("FCRA"), and the Fair Debt Collection Practices Act ("FDCPA"). The CFPB specifically identified the following requirements:
- Both the transferee and transferor servicers must deliver a written Notice of Transfer satisfying RESPA requirements;
- Within 60 days of the transfer, the transferee servicer cannot consider an on-time payment to the transferor servicer to be late for any purpose;
- The transferor must have reasonable procedures to report accurate credit information and to process customer disputes under the FCRA; and
- Servicers acting as debt collectors must provide notice to the borrower within five days of the initial communication under the FDCPA.
The CFPB warns that it "will take appropriate supervisory and enforcement actions to address the violations and seek all appropriate corrective measures, including remediation of harm to consumers."
Some Servicers Must Submit Written Plans
The CFPB may require some servicers engaged in "significant servicing transfers" to prepare and submit "written plans" to the agency detailing how they will deal with the "associated consumer risks." The CFPB emphasizes, however, that these plans are largely advisory, and servicers will not need CFPB approval to effectuate the transfer.
The agency advises that it will seek certain information in the transfer plans, including the number and principal balance of loans involved, details on servicing platforms that store loan information, detailed descriptions of system testing to ensure accurate transfer of loan information, transferee error mitigation strategies, training of staff involved in the transfer of information, and customer service plans to address problems arising in the transfer.
Mortgage servicers engaging in transfers of whole loans or mortgage servicing rights should implement, or update, their policies and procedures to ensure they consider the issues raised in Bulletin 2013-01 and the Final Rules. Particularly, policies and procedures should ensure that the loss mitigation process, and any trial or permanent loan modifications, continue uninterrupted. We also recommend that each mortgage servicer draft a written plan for each servicing transfer to document how its policies and procedures will be applied to a particular transaction and demonstrate that customer service will continue uninterrupted during the transfer process. Similarly, we recommend that mortgage servicers test the accuracy of the transferred data post-conversion.
Jones Day's Consumer Financial Products & Services team advises nonbank clients, including mortgage servicers, on various regulatory and supervisory issues, including CFPB examinations and enforcement.
For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com.
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