At the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo last week, CFPB Deputy Director Steven Antonakes issued a strongly-worded warning that the CFPB will continue to vigorously monitor and investigate the mortgage servicing industry. Deputy Director Antonakes stated that the CFPB will rely on its newly adopted Mortgage Servicing Rules (the “Rules”) and Sections 1031 and 1036(a) of the Consumer Financial Protection Act (“CFPA”), which prohibit unfair, deceptive or abusive acts or practices (“UDAAP”). In his speech, Deputy Director Antonakes recounted problems that had been observed in mortgage servicing and admonished that “the fundamental rules have changed forever” and that “business as usual has changed in mortgage servicing.” Specifically, the Deputy Director explained the CFPB’s expectations of servicers:
• Reach out to consumers to ensure that they know their default options;
• Assess consumers’ loss mitigation applications with care to avoid foreclosure;
• Closely monitor servicing transfers to ensure that the transfers are seamless, with all consumers’ information and documents appropriately and accurately transferred;
• Honor existing or trial loan modifications approved by prior servicers; and
• Turn to force-placed insurance as a last resort.
Deputy Director Antonakes’ speech echoes some of the CFPB’s observations in its recent Supervisory Highlights, which heavily focused on certain mortgage servicing activities, such as servicing transfers and issues arising in servicing defaulted loans. Among its findings, the CFPB reported that:
• Two servicers failed to honor existing permanent or trial loan modifications after loans had been transferred, which the CFPB determined was an unfair practice. The CFPB also found that the servicers had engaged in deception by representing to borrowers that they owed the original payments on their loans, rather than the payment established by a loan modification.
• Two servicers had unfairly required all borrowers, regardless of circumstance, to enter into broad waivers of existing claims as a condition of obtaining a forbearance or loan modification.
• One servicer had deceptively marketed a biweekly payment program by misrepresenting when payments would be applied by implying that payments would be credited biweekly, when in fact the extra payments were credited as a 13th annual payment.
• Servicers violated the Homeowners Protection Act by failing to terminate private mortgage insurance when mortgage balances reached 78 percent of the original value of the property and failing to return premiums within 45 days after a borrower appropriately requested cancelation.
• One servicer failed to comply with the Fair Credit Reporting Act’s Furnisher Rule by incorrectly reporting short sales as foreclosures to credit reporting agencies, to the consumers’ detriment.
• One servicer failed to honor existing requests from borrowers directing the servicer to contact their attorneys for all communications in violation of the Fair Debt Collection Practices Act.
Deputy Director Antonakes’ speech and the CFPB’s Supervisory Highlights continue a string of other CFPB actions focused on mortgage servicing. This has included an enforcement action in December 2013 against a major non-bank mortgage servicer, the release of updated servicing examination procedures, as described in a prior post, and the issuance of the new Rules.
With the new Rules, the CFPB has another tool in its arsenal to target mortgage servicers through supervision and enforcement. However, as Deputy Director Antonakes’ signaled in his speech, the CFPB will likely continue to employ its UDAAP authority for conduct prior to the effective date of the Rules and in conjunction with those Rules. As the Deputy Director sternly noted, “Mortgage servicing rule compliance is a significant priority for the Bureau. Accordingly, we will be vigilant about overseeing and enforcing these rules.”