On March 12, 2019, the Consumer Financial Protection Bureau (CFPB) released the 18th edition of its Supervisory Highlights report. The report covers supervision activities completed between June 2018 and November 2018 and discusses supervisory observations related to automobile loan servicing, deposits, mortgage servicing, and remittances.
I am going to provide a synopsis of the highlights as they pertain to mortgage servicing.
When I read the highlights, I am particularly glad that we help our mortgage servicer clients to avoid violations.
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A highlight from the CFPB should be understood as a violation of federal banking law. Be careful and vigilant!
Charging Consumers Unauthorized Amounts
One or more examinations observed that servicers charged consumers late fees greater than the amount permitted by mortgage notes. Examiners identified several types of affected mortgage notes. For example, certain Federal Housing Administration (FHA) mortgage notes permit servicers to collect late fees in the amount of 4.00 percent of the overdue principal and interest. However, on large numbers of loans, the servicer charged late fees on 4.00 percent of the overdue principal, interest, taxes, and insurance rather than on only the principal and interest. Examiners also identified mortgage notes containing provisions that limit the late fee amount. Programming errors in the servicing platform and lapses in service provider oversight caused the overcharges. The examination found that the servicer engaged in an unfair practice. The conduct caused a substantial injury to consumers because they paid more in late fees than required by their mortgage notes.
Misrepresenting Private Mortgage Insurance Cancellation Denial Reasons
In relevant part, the Homeowners Protection Act (HPA) requires servicers to cancel private mortgage insurance (PMI) in connection with a residential mortgage transaction if certain conditions are met. At one or more servicers, borrowers who verbally requested PMI cancellation were informed that they were declined because they had not reached 80 percent loan to value (LTV). Although the relevant amortization schedules did not yet provide for 80 percent LTV, examiners found that these borrowers had in fact reached 80 percent LTV based on actual payments because they had made extra principal payments. Although the borrowers did not satisfy other criteria necessary to trigger borrower-initiated cancellation rights under the HPA, such as certifying that the property is unencumbered by subordinate liens or submitting the requests in writing, the servicer did not provide these as reasons to borrowers for denying the requests.
One or more examinations identified servicer representations as deceptive because they misrepresented the conditions for PMI removal. Consumers might think that they had miscalculated payments such that they had not yet reached 80 percent LTV or had misunderstood some other aspect of meeting the LTV requirement. Note that the HPA does not require servicers to respond to verbal requests to eliminate PMI, and therefore, the servicer did not violate the HPA.
Failing to Exercise Reasonable Diligence to Complete Loss Mitigation Applications
Regulation X requires servicers to exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application. In examinations covering 2016 (this is outside the time frame of other activities in the report), examiners found that one or more servicers did not meet the Regulation X reasonable diligence requirements. These servicers offered short-term payment forbearance programs during collection calls to delinquent borrowers who expressed interest in loss mitigation and submitted financial information that the servicer would consider in evaluating them for loss mitigation. However, the servicer did not notify the borrowers that such short-term payment forbearance programs were based on an incomplete application evaluation. And near the end of the forbearance period, the servicer did not contact the borrowers as to whether they wished to complete the applications to receive a full loss mitigation evaluation. As a result, one or more examinations found that the servicer violated 12 CFR 1024.41(b)(1) requirements to exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application.
Requirements for Foreclosure Timeline Extensions in Home Equity Conversion Mortgages
One or more examinations reviewed the servicing of home equity conversion mortgage (HECM) loans, a type of reverse mortgage insured by the Department of Housing and Urban Development (HUD). Under the terms of such mortgages, the death of the borrower on the loan constitutes default, and HUD generally requires HECM servicers to refer such loans to foreclosure within six months of the death of the borrower to be eligible for HUD insurance. HUD also allows servicers to request up to two 90-day extensions to enable successors to purchase the property or market the property for sale without losing the benefit of HUD insurance. One or more servicers sent a notice to successors-in-interest after the borrower on the loan died. The notice stated that the loan balance was due and payable, but that the successor could qualify for an extension of time to delay or avoid foreclosure. Examiners found that some successors did not receive a complete list of all the documents needed to evaluate them for an extension. Some of these successors returned the form indicating their intentions to purchase the property or market the property for sale, but did not return all the documents that were needed for the evaluation. As a result, the servicer did not seek an extension for these successors.
Jonathan Foxx, PhD, MBA
Lenders Compliance Group