This likely comes as a shock to noone, but banks aren't very good at
customer service or complying with regulations. The Consumer Financial
Protection Bureau, which has been supervising bank and non-bank institutions
for roughly two years has released its
Summer 2013 Supervisory Highlights.
The report begins by describing how banks fail at regulatory compliance
-- they tend to lack robust compliance management systems. These systems
should include oversight by management, a general compliance program,
a program for managing consumer complaints, and an independent compliance
audit. Not too surprisingly, internal complaince audits were found to
be largely ineffective at increasing compliance. In fact, internal audit
programs were found to increase the risk of noncompliance and consumer harm.
Quite simply, institutions that develop complex financial instruments cannot
craft simple institutional systems to oversee the operation of the institution.
The report then turns to mortgage servicing oversight. The findings are
not much better. When servicers transfer servicing rights from one entity
to another, it was found that key systems were lacking. Many entities
did not properly notify consumers of the servicing transfer. Additionally,
the review and handling of key documents, such as loan modifications,
was poorly managed. In some cases, documents provided by the prior servicer
Processing payments is also problematic for servicers. Keep in mind that
payment processing is one of the key functions of a mortgage servicer.
This category also includes problems such as failing to notify consumers
of payment address changes and changes in how property taxes are paid.
In one instance, a servicer started paying property taxes in January as
opposed to December. This meant that customers used to taking a tax deduction
were unable to take the deduction in the expected tax year. Some servicers
even paid property taxes late, which violates RESPA.
In the realm of loss mitigation, the report notes that there are myriad
problems. Among them are: inconsistent communictation with borrowers,
inconsistent underwriting of loan modifications, inconsistent waivers
of fees and charges, long application review periods, missing denial notices,
incomplete servicing files, incomplete policies and procedures, and lack
of quality control on underwriting.
Basically, loss mitigation is a massive problem area. Given that these
problems are covered both by the National Mortgage Settlement and the
CFPB's new servicing guidelines, this represents an absolute failure
of the banks to get on board with what they have already promised to do.
On the whole, it looks like the CFPB will be very busy when its new regulations
go live on January 10, 2014.