Compliance Blog

Written by JiJi Bahhur, Director of Regulatory Compliance

Last week, the Consumer Financial Protection Bureau (CFPB) released its eighth edition – Summer 2015 – of Supervisory Highlights.  Each edition of the CFPB’s Supervisory Highlights reports outline illegal practices that the CFPB’s examiners uncovered during a specific timeframe.  Specifically, the Summer 2015 edition covers illegal practices cited during the first four months of 2015 and include observations in:

• Consumer reporting;
• Debt collection;
• Student loan servicing;
• Mortgage origination;
• Mortgage servicing; and
• Fair lending. 

One of the CFPB’s concerns was that mortgage servicing rules still remained an issue even after being in effect for a year.  In a press release, CFPB Director Richard Cordray stated, “Consumers deserve to be treated with honesty and integrity, and our rules require that servicers give borrowers a fair process when they try to save their homes.  The CFPB will continue to stand beside consumers to make sure mortgage servicers are following the law.” 

I don’t want to spoil your reading if you haven’t had a chance to read it yet, but here is a snippet from the mortgage servicing portions of the report:

“2.5.1 Loss mitigation

Regulation X sets forth requirements for soliciting, completing, and evaluating loss mitigation applications. As part of these requirements, servicers must notify borrowers in writing within five days after receiving a loss mitigation application acknowledging that it received the application, and stating whether it is complete or incomplete. If the application is incomplete, the servicer must list in its notice the additional documents and information the borrower must submit to complete the application, often called “acknowledgement notices.”

Examiners found that at least one servicer sent borrowers loss mitigation acknowledgment notices requesting documents, sometimes dozens in number, inapplicable to their circumstances and which it did not need to evaluate the borrower for loss mitigation. Examiners also found that at least one servicer sent loss mitigation acknowledgement notices requesting documents that borrowers had previously submitted. Supervision cited the servicers for violating Regulation X and directed them to state in acknowledgment notices the specific additional documents actually required to complete a loss mitigation application.

Examiners also found that one or more servicers failed to send any loss mitigation acknowledgment notices. At least one servicer did not send notices after a loss mitigation processing platform malfunctioned repeatedly over a significant period of time. Supervision cited one or more servicers for violating Regulation X. Supervision also cited this practice as unfair because the breakdown caused delays in converting trial modifications to permanent modifications, resulting in harm to borrowers, and may have caused other harm. The injury caused by the platform failure is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or competition. At Supervision’s direction, one or more servicers have begun to remediate consumers, including for interest and fees incurred and for any additional harm. Supervision also directed one or more servicers to fix the servicing platform and to monitor for system weaknesses.

At least one other servicer did not send loss mitigation acknowledgment notices to borrowers who had requested payment relief on their mortgage payments. One or more servicers treated certain requests as requests for short-term payment relief instead of requests for loss mitigation under Regulation X. However, short-term payment relief, including deferments, provide loss mitigation options in that they provide borrowers an alternative to foreclosure, and Regulation X requires that servicers send loss mitigation acknowledgment notices in response to requests for a loss mitigation option. Supervision determined that at least one servicer violated Regulation X by failing to send these notices.

Additionally, examiners found a deceptive practice related to how one or more servicers disclosed the terms of a payment plan that deferred mortgage payments for daily simple interest mortgage loans.35 The servicer’s communications included misleading representations about how the deferments worked, incorrectly suggesting that deferred interest would be repayable at the end of the loan term when, in fact, it would be collected from the consumer immediately after the deferment ended. Supervision directed one or more servicers to clearly disclose how interest accrues while on the plan and its impact on monthly payments after the deferment period concludes.

The Bureau continues to examine for the risks inherent in transferring loans in loss mitigation, including the risk that information is not accurately transferred between servicers. Examiners found one or more servicers failed to honor the terms of some trial modifications after transfer. Some borrowers who completed trial payments with the new servicer nonetheless encountered substantial delays before receiving a permanent loan modification. Supervision concluded that the delay caused substantial injury as trial payments were less than the amounts required by the promissory note, and consumers continuing to make trial payments while waiting for the permanent modification accrued interest on the unpaid principal balance. Because Supervision also concluded that such injury is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or competition, Supervision cited this practice as Supervision directed one or more servicers to develop and implement policies, procedures, training, and audits to promptly identify and honor loss mitigation agreements, whether completed or in progress, between the borrower and prior servicer at time of transfer.””(footnotes omitted). 

Other violations cited under the mortgage servicing section of the report included findings in the areas of foreclosure, periodic statement disclosures, and Homeowners Protection Act compliance. 

Although the CFPB only has examination authority over certain financial institutions, including credit unions over $10 billion, its supervisory focus affects all financial institutions and serves as a means for even smaller credit unions to stay compliant with federal consumer financial laws.

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Programming Note #1.  Exciting news!  NAFCU’s Compliance Team strives to ensure that its credit union members continue to receive up-to-date, useful compliance resources.  As part of those efforts, we will be releasing the first issue of a new online newsletter – NAFCU Compliance Cybercafé – in August.  As the name suggests, the newsletter, which will be made available periodically, will focus on cyber security and other inter-related items, with an emphasis on looking at these issues from the perspective of a compliance officer. 

In related news,  we have made a business decision to combine the July and August Compliance Monitor issues into one – the July/August issue.  We will release the issue in mid-July.   Rest-assured, all content that would normally be covered over 12 issues will still be covered within the existing issues we release.

Programming Note #2.  NAFCU's office will close at noon on Thursday and will also be closed on Friday for the long holiday weekend. We will be back to blogging on Monday. Have a great long weekend!

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