During the Great Recession courts expressed frustration with sloppy paperwork and borrowers’ inability to get anyone to help them work out problem loans. Many courts refused to allow mortgage foreclosures to proceed because of the perceived mess. The Consumer Financial Protection Bureau just made it clear it was not going to tolerate these problems when it comes to the transfer of mortgage servicing rights.
On Monday, the CFPB issued guidance directing servicers to “make sure consumers are not collateral damage in the mortgage servicing transfer process.” Servicer must be careful when transferring loans servicing rights. The CFPB wants servicers to know that, where appropriate, they will be required to prepare and submit “informational plans describing how they will be managing the related risk to consumers” when making transfers.
One problem that the CFPB is focused on occurs when transferee servicers fail to honor the terms of loan modifications agreed to by their predecessors because the relevant paperwork is not transferred. The CFPB’s mandate: Do not lose the paperwork; keep track of the borrower’s loss mitigation efforts and do not let the transfer process interfere with the borrower’s efforts to stay in his home. CFPB examiners will pay particular attention to the following:
- How a transferor servicer has prepared for the transfer of servicing rights.
- What steps are taken to make sure the information being transferred is compatible with the new servicer’s computer system?
- Is enough information being transferred so there is no service interruption?
- Is there a plan on how the transferor will respond to questions from the transferee servicer and consumers about the transferred loans?
- How a transferee servicer handles the files transferred to it.
- What efforts does the transferee make to ensure it gives consumers accurate information about what they owe?
- What steps is the transferee taking to identify loss mitigation efforts that are in process at the time of the transfer?
- What due diligence does the transferee perform to make sure it is servicing platform and other systems accurately reflect all account level information?
- What training does the transferee provide to make sure its staff is able to efficiently and accurately use the transferred loan information?
- What post-transfer audits does the transferee conduct to make sure that all data are properly transferred?
- For loans in the loss mitigation process, what policies have the transferor and transferee implemented to ensure:
- The transferee gets information about which loans are in any state loss mitigation prior to the date of the transfer.
- The transferor sends and transferee receives loss mitigation applications, financial documents and loss mitigation history and details.
- The transferee properly applies payments under any applicable loan modification agreement.
- The transferee considers the status of any loan modification or forbearance agreement before it tries to collect amounts due.
- The transferee keeps in touch with the borrower about the status of any loss mitigation.
Get ready. This kind of inquiry could easily lead to enforcement actions for the non-compliant.