Last week the Consumer Financial Protection Bureau (CFPB) released updated mortgage servicing examination procedures. The third edition, dated June 22, 2016, offers guidance to credit unions on what the CFPB will be looking for in its exams. Among other things, mortgage servicers should note a greater emphasis on complaint handling and requests by troubled borrowers and discrimination issues.
The CFPB will be scrutinizing servicers for compliance with fair lending laws, especially creditors that participate in a credit decision about whether to approve a mortgage loan modification. These reviews include making sure creditors do not discriminate in any aspect of a credit transaction because of race, color, religion, national origin, sex, marital status, age, income coming from a public assistance program, or an applicant’s exercise of certain consumer protection rights.
Examination procedures will focus on how well a credit union’s compliance management system identifies and manages fair lending risks related to servicing, including fair lending training of servicing staff, fair lending monitoring of servicing, and servicing consumers with Limited English Proficiency.
The updated rules were released hand-in-hand with a Special Edition of Supervisory Highlights (Issue 11). In the issue, the CFPB shares findings from mortgage servicing exams since the new CFPB rules took effect in 2014.
The Highlights include widespread mortgage servicing problems, most extensively in the area of Loss Mitigation, including:
- Loss mitigation acknowledgement notices, including failing to review loss mitigation applications in a timely manner
- Deceptive and misleading loss mitigation offers and related communications
- Loan modification denial notices not including the reason for denial, or the right to appeal
- Policies and procedures related to loss mitigation that do not address providing accurate and timely information and documents in response to a borrower, and, upon the death of a borrower, promptly identifying and facilitating communication with the successor in interest of the deceased borrower
- Servicing transfers during the loss mitigation process
Compliance with many of these requirements necessitate strong policies and procedures related to systems and technology. Servicers must maintain accurate records and include protections for struggling homeowners, including those facing foreclosure.