CFPB mortgage servicing rules expand mortgage industry's regulatory overhaul
by Broderick Perkins
(4/11/2012) Erate Exclusive - Underscoring how unhinged the mortgage
industry has become, yet another round of mortgage servicing rules is coming
down the pike, this time from the Consumer Financial Protection Bureau
Dovetailing on the National Mortgage Settlement and other edicts to clean
up the mortgage industry, CFPB's rules are empowered by the Dodd-Frank Wall Street
Reform Act to make mortgage servicing more transparent, less problematic and
fully accountable to both the public and federal regulators.
Mortgage servicers are responsible for collecting payments from borrowers
on behalf of the actual mortgage lender. The servicer also handles customer
service, loan modifications, collections, and foreclosures. Mortgage lenders
can also act as servicers.
Mortgage servicers have been more than remiss serving distressed
homeowners since the housing market fell in a hole.
Servicers have been and continue to be the target of federal suits, state
suits, joint federal and state suits, class-action suits, numerous
complaints from individuals and regulatory overhaul on par with that of the
tobacco industry in years gone by.
The industry's failures have been cancerous to the recovering economy,
forcing regulators to smoke out what ails an industry that appears to lack a
While federal officials and state attorneys general wrangled for a year
with mortgage servicers to finalize the National Mortgage Settlement, instead of cleaning up
their act, and preparing to correct misdeeds, mortgage servicers continued
the same abusive foreclosure tactics that ended up costing them more than
$25 billion dollars, according to a scathing study by a group of consumer
law advocacy groups.
In examinations of fourteen major servicers, the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, and the
Office of Thrift Supervision concluded that servicers were more interested
in assembly-line speed to save money, than quality and accuracy in their
Cost of doing business
It's as if having to ante up for a multi-billion dollar settlement is
merely the cost of doing business - as usual.
"The servicing industry had problems before the financial crisis, and
many servicers have failed to keep pace with the increasing number of
mortgage delinquencies," writes CFPB's Ashley Gordon, to
put it mildly.
The national settlement reveals abusive foreclosure, short sale and loan
modification practices were deep-seated, institutionalized behaviors that
violated state and federal laws. Criminal charges are still on the
"Many borrowers have complained that they did not receive the information
they needed to stay on track with their mortgage and avoid foreclosure.
Other borrowers ran into trouble because they had difficulty getting answers
from their servicers," wrote Gordon.
In too many cases, mortgage service industry failures, not actual personal financial distress, cost large swaths of
households their most valuable asset. Settlement provisions to provide
financial restitution for those wrongs are mirthlessly laughable.
Holding servicers accountable
Perhaps, CFPB surmises, with better information, with greater
transparency, some people might have been able to save their homes from
CFPB's proposed rules, similar to those outlined in the national settlement,
demand that servicers provide:
Clear monthly mortgage statements that explicitly disclose and breakdown principal, interest, fees,
escrow, and due dates.
Ample warnings before adjusting interest rates on certain
adjustable rate mortgages (ARMs) that explain how the new rate was
determined, when it will take effect, dates of future adjustments, and a
list of alternatives for consumers to consider.
Options for avoiding expensive "forced-placed" insurance, which is
insurance charged to borrowers by servicers when their existing insurance
appears to have lapsed.
Early outreach to struggling borrowers that informs them of
potential options to avoid foreclosure.
CFPB is also considering rules to address the "run-around" consumers
often face when dealing with servicers and is considering proposals that
Payments to be credited to consumer accounts the day payment is
Implementing new policies and procedures so that records are kept
up-to-date and accessible.
Quickly addressing and correcting errors.
Giving homeowners direct and ongoing access to servicer staff members
who have access to the homeowners' records and can actually help address
CFPB expects the additional rules to be open to public comment this
summer and to finalize rules by early next year.
"We believe these rules represent important steps to demystifying the
ambiguity of mortgage servicing and providing homeowners with information
and assistance before it¹s too late," Gordon wrote.
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