Just months before the Consumer Financial Protection Bureau's new mortgage servicing rules went into effect, servicers continued to require that borrowers jump through hoops to get loan modifications and often failed to notify them when loans were transferred to other servicers.
The rules that took effect Jan. 10 require mortgage servicers to maintain accurate records, give troubled borrowers direct access to servicing staff, promptly credit payments, and correct errors on request. Without naming names, the CFPB said in a report released Thursday that, based on its examinations, servicers continued to engage in such practices for much of last year.
The aim of the report was to remind mortgage servicers that the CFPB will be watching to ensure that they follow the new rules.
"We expect servicers to clean up their act and provide responsible customer service," CFPB Director Richard Cordray said in a press release. "Problems in mortgage servicing have plagued consumers for years and helped contribute to the financial crisis."
The CFPB made no distinction between banks and nonbanks, so it's unclear which ones, if any, were the worst offenders.
The five largest servicers Bank of America (BAC), Citigroup (NYSE:C), JPMorgan Chase (JPM), Wells Fargo (WFC) and Ally Financial signed settlement agreements with federal and state authorities in 2012 that required them to revamp their servicing practices. All have all certified that their systems have improved dramatically over the last two years.
Going forward, the spotlight could shift to nonbank servicers. In December, Ocwen Financial (OCN) agreed to pay $2 billion to state and federal regulators, including the CFPB, to settle allegations it mishandled foreclosures and mortgages for thousands of borrowers. If the new rules had been in place then, Ocwen would have paid a bigger penalty.
The CFPB specifically singled out unfair practices in the transfer of mortgage servicing rights, which has taken on greater importance as large banks like Wells Fargo shed servicing assets to comply with new capital rules. On Jan. 22, Wells announced it was selling the servicing rights on $39 billion of loans to Ocwen.
The CFPB's examiners found that two servicers engaged in unfair practices by failing to honor existing permanent or trial loan modifications after the servicing rights were transferred. In one egregious example, an unnamed servicer sent letters to borrowers attempting to collect the full monthly mortgage payment even after the borrower had contracted to pay a lower trial modification amount. This particular servicer called borrowers repeatedly to demand that the borrower pay more than the amount of their modified loan.
Servicers also continue to struggle with the basics of processing loan payments and handling tax and insurance payments through escrow accounts. Examiners found that one unnamed servicer marketed bi-weekly payment plans, misrepresenting that consumers could save money. Another servicer told some borrowers they would receive refunds from their escrow accounts, when in fact they would not.
Some servicers also appeared to take advantage of members of the military.
Military personnel have supplemental protections relating to consumer financial products. CFPB examiners found that two unnamed servicers referred certain borrowers to foreclosure before checking if they were members of the military. Several large banks, including B of A, JPMorgan Chase and Morgan Stanley (MS) have paid hefty fines for improperly foreclosing on members of the military.