Many mortgage servicers are continuing to fall short of their obligations under the Consumer Financial Protection Bureau’s mortgage servicing rules, often due to their reliance on failed technology, according to the bureau. “Mortgage servicers can’t hide behind their bad computer systems or outdated technology,” said CFPB Director Richard Cordray. “Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.”
In an effort to focus on the duties of mortgage servicers and spur industry compliance with regulatory requirements, the CFPB has published a special edition of its periodic Supervisory Highlights and also updated its mortgage servicing examination procedures. The CFPB said that mortgage servicing industry problems with “bad practices and sloppy recordkeeping” dated back to before the financial crisis.
To address these widespread mortgage servicing problems, the CFPB put in place new rules requiring strong policies and procedures related to systems and technology. The mortgage servicing rules are contained in Subpart C of Reg. X—Real Estate Settlement Procedures (12 CFR Part 1024), and they took effect on Jan. 10, 2014. They govern not only general servicer duties but also handling escrow accounts, error resolution procedures, borrower requests for information, dealing with borrowers in difficulty, force-placed insurance, and transfers of servicing.
Ongoing problems. While some mortgage servicers have made great progress, the industry has not made enough investment across the board, the bureau complains. Bureau examiners have found obsolete technology, inadequately trained servicer employees, and insufficiently tested and audited systems and software. The CFPB noted specifically that:
- technology problems have resulted in loan modification information being late, inaccurate, or deceptive; and
- incompatible technology has caused problems when servicing rights are transferred, to the extent that agreed-on loan modifications may be lost.
Best practices. The bureau also noted two practices that some servicers have adopted, in addition to modernizing their technology, to ensure compliance with the rules. These servicers have created the ability to keep track of, review, and search complaint records and established a complaint governance committee to make sure that all borrower complaints are given appropriate attention.
Exam procedures. The mortgage servicing exam procedures are being updated for the third time. The procedures tell servicers that the bureau will be paying special attention to how complaints by borrowers in trouble or facing foreclosure are handled and whether equal credit laws are being complied with, particularly in the context of loan modification decisions.
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