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.
If you need assistance, we are the cost-effective solution. Contact us for more information!
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
Managing Director
Lenders Compliance Group
