WASHINGTON — The Consumer Financial Protection Bureau released guidance on Monday that will require mortgage servicers to detail plans for reducing mishaps stemming from when they exchange the rights for managing a portfolio.
The CFPB bulletin, which was issued nearly a month after the bureau finalized a broad series of general requirements for mortgage servicers — warned of recent consumer complaints about service interruptions, the failure of new servicers to recognize terms of loan modifications and other complications arising from transfers of servicing rights between companies.
"Consumers should not be collateral damage in the mortgage servicing transfer process," CFPB Director Richard Cordray said in a press 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."
The bureau said examiners will begin focusing on servicers' ability to ensure a smooth transition during such transfers, including for when a new servicer takes on the rights to loans going through pending loss mitigation. Supervisors will also ensure servicers are complying with statutory provisions related to transfers, including the Real Estate Settlement Procedures Act and the Fair Credit Reporting Act.
"It appears transferee servicers sometimes fail to honor the terms of trial loan modifications provided by predecessor servicers because relevant documents are not transferred to the transferee servicer, or the transferee servicer does not take adequate steps to identify mortgages subject to trial loan modifications," the bulletin said. "The CFPB is making these and other servicing transfer-related issues a focus of supervisory activities in the mortgage servicing area."
Among other specific areas, examiners will pay attention to whether transferors ensure servicing information changes hands in a way that is "compatible with the transferee's servicing system." They will also look at steps transferees take to identify loans subject to the transfer that are going through loss mitigation, as well as whether "the transferee is properly applying, after transfer, payments due under an applicable loan modification agreement or other applicable payment modification agreement."
"During the course of supervision, examiners are assessing the policies, procedures, systems, and controls that servicers have established to address the risks to consumers in connection with servicing transfers," the CFPB said. "Moreover, examiners are assessing whether mortgage servicers are adequately staffed and are ensuring that their employees are trained to handle consumer communications in the context of servicing transfers."
In certain "appropriate cases," the CFPB added, servicers involved in "significant … transfers" will be required to submit written plans to the bureau on their efforts to mitigate potential consumer risks associated with such exchanges.
Plans must generally include, among other things, the number of loans and total unpaid balances involved in a transfer; information about the compatibility of a transferor and transferee's systems to store account-level information; how the transferee will flag and correct any errors; and the appropriate steps for training staff that review information about transferred loans.
"The CFPB will use these plans to assess consumer risks and inform further examination planning," the bulletin said. "Servicers do not need approval from the CFPB before moving forward with servicing transfers."