On June 22, 2016, the CFPB issued a Mortgage Servicing Supervisory Highlights Special Edition Report, and concluded that mortgage servicers may be violating the servicing rules that the CFPB enacted in January 2014, as a result of servicers’ continued reliance on ineffective technology. In addition, the press release accompanying the report also included an update unrelated to the substance of the Report, announcing the CFPB’s intention to shift its mortgage servicing examination priorities going forward, by applying fair lending laws to ensure that loan servicers do not discriminate against borrowers during the loan modification process. The announcement may signal a the beginning of a new trend in the CFPB’s enforcement efforts.
In the wake of the financial crisis, the CFPB enacted rules designed to enhance the timeliness and accuracy of servicers’ communications with borrowers. In the Report, the CFPB determined that, in spite of these new rules, servicers often send confusing or inaccurate information to borrowers, and do not always respond to borrower inquiries promptly. The Report—which is based mostly on data collected from large servicers between January 2014 and April 2016—concludes that servicers’ noncompliance results from their reliance on flawed automated systems used to track loan information, process loan modifications, and communicate with borrowers. Specifically, the CFPB identified the following issues of concern:
- Loss mitigation acknowledgement notices. Servicers do not send acknowledgement letters to confirm receipt of borrowers’ loss mitigation documentation in a timely manner, or accurately inform borrowers about how to continue the loss mitigation process after borrowers’ initial submission of applications and supporting material.
- Borrower communications. Servicers generally do not respond to borrower inquiries in a timely fashion, and communications sent to borrowers can be inaccurate or confusing.
- Loan modification denial notices. Denial notices sometimes fail to state the correct reason for denials, and do not adequately inform borrowers about their right to appeal servicers’ decisions.
- Loss mitigation and transfer of servicing rights. When servicing is transferred, successor servicers do not always update their systems to reflect ongoing loan modification efforts, resulting in the successor servicer’s failure to continue the loan modification process or to implement loan modifications.
In addition to those issues, the CFPB announced its intention to shift the focus of its mortgage servicing examination priorities in a press release accompanying the Report—an update that is easy to miss because it is at the end of the press release and is not related to the CFPB’s findings in the Report. In that section of the press release, the CFPB signaled that it would shift its focus to ensure that no discrimination takes place during the loan modification process, and to address the adequacy of servicers’ responses to borrower complaints. The CFPB’s stated intention to focus on discrimination in the loan modification process is particularly noteworthy, because it may signal a significant shift in the CFPB’s enforcement priorities. The CFPB stated its intention to use its enforcement powers to ensure that servicers do not discriminate on the basis of “race, color, religion, national origin, sex, marital status, age, income coming from a public assistance program, or an applicant’s exercise of certain consumer protection rights” in evaluating loan modification applications. Using fair lending laws in this way has not been a focus of the CFPB’s enforcement efforts in the past.
Servicers should take note of the Report and accompanying press release, as both may indicate the future direction of the CFPB’s enforcement efforts. Servicers should also shore up their systems to ensure that they are in compliance with Regulation X’s loss mitigation servicing requirements, to ensure that they are processing loan modification applications in a fair and non-discriminatory manner. LenderLaw Watch will continue to monitor the CFPB and highlight potential changes to the CFPB’s enforcement priorities as they arise.
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