CFPB reminds servicers of their legal obligations to borrowersby Michele Lerner
If you have had your mortgage loan transferred from one loan servicer to another, you’re not alone. Lenders frequently sell their loans to other servicers, but bank closures and the cancellation of mortgage business by many financial institutions has meant that more loans than usual have been transferred.
Most recently, GMAC will no longer accept mortgage applications and is in the process of transferring thousands of existing loans to other servicers.
Servicers have a legal obligation
The Consumer Financial Protection Bureau (CFPB) recently issued a press release that reminds mortgage lenders about their legal obligations to protect consumers during loan transfers. The agency is particularly concerned about the danger to homeowners who are in the midst of a loan modification. The CFPB bulletin reminds mortgage servicers to:
- Avoid losing paperwork
- Avoid losing track of loss mitigation plans
- Avoid doing anything that could harm a struggling homeowner’s chance of avoiding foreclosure
“Consumers should not be collateral damage in the mortgage servicing transfer process,” said CFPB Director Richard Cordray in the release. “This guidance directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of such transfers, and makes clear that we will be monitoring them for compliance.”
Raphael Bostic, director of the Bedrosian Center on Governance at the University of Southern California and former assistant secretary for policy development and research at HUD, says that while many financial institutions already have systems in place to handle paperwork efficiently for customers undergoing a loan modification, this bulletin should encourage all lenders to develop industry-wide best practices for mortgage servicing transfers.
“I think this directive will help in places where there may be less monitoring of paperwork, especially when a consumer is facing ‘dual-tracking,’ with both a foreclosure in process and a loan modification happening at the same time,” says Bostic. “Losing documents at a time like that could slow down the loan modification process and speed up the foreclosure track.”
The punishment for lenders who fail to comply with the CFPB’s warning is not specified in the bulletin.
“Since it is a new agency, it’s unclear what authority the CFPB will eventually have,” says Bostic. “It should be able to bring claims against any financial institution, but the jury’s still out on what kind of consequences they will face. In the meantime, I believe the mortgage industry will want to follow best practices because there’s such an appetite out there to pursue cases against them.”
Bostic says the media attention focused on the treatment of consumer records in the past (think robo-signing) should act as an incentive for lenders to be vigilant.
New mortgage servicing rules
New rules about mortgage servicing from the CFPB that go into effect in January 2014 say that mortgage servicers must transfer documents and all information about a borrower in a “timely manner.” Information to be exchanged is particularly important for borrowers having difficulty making their mortgage payments, especially if they are being given options by their lender for alternative mortgage payment plans. Paperwork transfers can also slow down a refinance.
Unfortunately, there’s nothing a consumer can do to force their lender to transfer all their documentation quickly and completely to a new servicer. However, if your loan is transferred, you should compare your loan balance and escrow accounts on statements from each lender to make sure your payments have been accurately recorded.