The CFPB recently released a Bulletin directed to residential mortgage servicers and subservicers (servicers). The purpose of the Bulletin is to put servicers on notice that the CFPB intends to focus its supervisory process on mortgage loan servicing transfers. If the CFPB determines that a transferor or transferee servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate federal consumer financial laws and regulations (including RESPA, FCRA, and FDCPA), the CFPB indicated its intent to take appropriate supervisory and enforcement actions and seek all appropriate corrective measures, including remediation of harm to consumers.
The CFPB views a servicer as, among other things, an entity that collects and processes loan payments on behalf of the owner of the mortgage note. In the Bulletin, the CFPB uses the term “transfer” broadly to cover transfers of servicing rights as well as transfers of servicing responsibilities through subservicing or whole loan servicing arrangements.
The CFPB’s concern with servicing transfers arose from the CFPB’s experiences with consumer complaints and its supervisory process. That concern was heightened by the large number and size of recent servicing transfers. The CFPB provided some examples of consumer complaints it has received, including complaints that transferee servicers have failed to honor the terms of trial loan modifications provided by the transferor servicers because relevant documents were not transferred to the transferee, or when the transferee failed to take adequate steps to identify loans involved in trial loan modifications.
CFPB’s Areas of Focus
The CFPB noted three main areas of its focus:
• The transferor servicer’s preparation for transferring servicing rights and/or responsibilities: This includes ensuring adequate information flow between the transferor and transferee, minimization of service interruptions, and the transferor’s ability to respond to consumer inquiries.
• The transferee servicer’s ability to handle transferred files: This includes due diligence efforts, employee training, post-transfer audits, and procedures identifying the loss mitigation in process.
• Policies and procedures implemented by the transferor and transferee servicers for loans in the loss mitigation process: Ensuring that the transferee receives information regarding which loans are in loss mitigation prior to the effective transfer date. The CFPB acknowledges that these policies and procedures will depend on the circumstances of the transfer.
Written Plans for “Significant Servicing Transfers”
While servicers are not required to seek approval from the CFPB before engaging in servicing transfers, the CFPB expects to see written plans from servicers engaged in “significant servicing transfers” (the CFPB does not define what constitutes a “significant” transfer). The plans must specify how the servicers intend to manage associated consumer risks. While servicers are expected to tailor their plans to the circumstances of the particular transfer, the CFPB says each plan should generally include:
• The number of loans involved in the transfer,
• The total servicing volume being transferred, as measured by unpaid principal balance,
• The name(s) of the servicing platform(s) used by the transferor and transferee, and information about compatibility with the transferee’s systems,
• A detailed description of the transaction and system testing to be conducted, to ensure that information is accurately transferred,
• The error identification and ratification process,
• Employee training plans and materials, and
• A customer-service plan specific to the transferred loans.
Upcoming Servicing Rules
The Bulletin was issued a few short weeks after the CFPB issued its national mortgage servicing standards, which take effect on January 10, 2014. Under these new rules, servicers are expected to maintain policies and procedures that are “reasonably designed to achieve the objectives of facilitating the transfer of information” during mortgage servicing transfers. The CFPB noted that it intends to work with servicers to support implementation of the new rules. The CFPB highlighted two main areas of focus for servicers to ensure compliance with the new rules:
• A transferor servicer should transfer all information and documents related to a transferred mortgage loan to a transferee servicer in a timely fashion. The form and manner in which the information and documents are transferred must enable the transferee to comply with the terms of the associated loan. The CFPB permits this to be done electronically, so long as the accuracy of the information and documents is maintained.
• The transferee servicer must identify necessary information or documents that may not have been transferred by the transferor, and take steps to obtain this missing information.