Mortgage Servicers Still Causing Big Problems, CFPB Says

Homeowners continue to find frustration with mortgage servicers that collect and process monthly mortgage payments, according to a report issued Wednesday by the Consumer Financial Protection Bureau. Among the findings of a nationwide review: the agency found some servicers are “sloppy” about transferring paperwork when loans are sold, misapply payments and occasionally cause homeowners to pay their property taxes late.

“Today’s report highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that nonbanks are following federal law,” said CFPB Director Richard Cordray. “Fixing both is a priority for us.”

When homebuyers begin paying their mortgages, they are often sent on a maddening paperwork carousel, as lenders sell the loan to a mortgage servicing firm, which can sell the loan to still another servicer within a few months, and so on. Lenders say servicers add efficiency to the market and allow them to concentrate on approving loans, but consumers are often left wondering where to send their mortgage payments, and if the payments are applied correctly.

The CFPB is now charged with regulating the servicer marketplace, including so-called nonbanks that perform typical banking functions but aren’t regulated by traditional federal banking agencies.

Wednesday’s report didn’t release the names of misbehaving servicers, but was instead designed to nudge firms to take “corrective actions.”

True Tales of Mortgage Servicers

Some tales included in the report sound harrowing. One servicer decided to delay property tax payments from December to January for thousands of mortgage holders, without telling the consumers, causing them to miss out on a crucial federal tax deduction. The unnamed servicer is being forced to compensate the borrowers, the report said.

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At another servicer, examiners found excessive delays in processing borrower requests for private mortgage insurance cancellation, the report said.

Bureau examiners also found that many servicers did not have the proper compliance management systems in place to ensure the firm was correctly applying federal laws. Many firms didn’t have complete audit trails to show they were properly managing paperwork and responding to consumer complaints, for example.

The sloppy paperwork issue has been a thorn in the side of consumers trying to qualify for loan modifications or other kinds of mortgage relief. Examiners found homeowners looking for relief ran into a host of red tape, including:

Inconsistent waivers of certain fees or interest charges;
Long application review periods;
Missing denial notices;
Incomplete and disorganized servicing files;
Incomplete written policies and procedures;
Lack of quality assurance on underwriting decisions.

Examiners are also making sure firms are ready to comply with a host of new servicing rules set to take effect in January, most designed to give consumers more warning when interest rates are about to reset or they are at risk of foreclosure. (A good summary of those rules can be found here.)

“The CFPB’s goal is to help ensure a financial services marketplace that operates in accordance with federal consumer financial law and works well for both consumers and the businesses that serve them,” the report said.

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