The Consumer Financial Protection Bureau issues bulletins for many purposes,
one of which is to notify the industries that it regulates about upcoming
changes in regulations. This practice allows regulated industries to (hopefully)
prepare for the changes in advance so that they can be in compliance as
soon as new rules take effect.
On February 11, the CFPB issued a bulletin to notify mortgage servicers
what is coming up in the world of servicing regulations. In addition to
the new servicing regulations that go live on January 10, 2014, the CFPB
will also be paying close attention to the transfer of servicing rights.
When you obtain a mortgage loan, your lender may or may not be the entity
that services your loan. Loan servicers collect mortgage payments, assess
fees and penalties, and generally handle the day-to-day work of managing
a portfolio of loans. In some cases, servicers may own the loans that
they service. In others, they may be a subsidiary of the owner of the
loan. There are also companies that exist solely to service loans -- they
do not issue loans, but focus their efforts solely on servicing existing loans.
Because there is a market for mortgage loans and the servicing rights to
loans, there are several ways in which a mortgage loan may change hands.
The CFPB seems to be primarily concerned with three scenarios:
- Original lender sells loan to new investor, new investor selects a new servicer.
- Entire loan portfolios may be transferred from one entity to another.
- Loan servicers may sell servicing rights as an asset to another servicer.
There are other ways in which servicers may change, but these are the three
When a loan is transferred from one servicer to another, there is a risk
that there will be an interruption in servicing or some other problem
that arises. Payments may be mis-applied during the transition, the previous
servicer may provide inaccurate information, one servicer's computer
software may not work well with data from another servicer's software,
etc. The CFPB has determined that the high volume of consumer complaints
surrounding mortgage servicing indicates that these problems are not isolated.
The CFPB will be focusing on several stages in the servicing transfer process:
- Is the servicer transferring the data ensuring that it is accurate and
compatible with the recipient's systems?
- Is the recipient auditing the data to ensure that it is accurate and functions
within its own system?
- Is the recipient able to examine account-level information (dates payments
are made/applied, dates that fees are assessed, etc.)?
- Is other information related to the account transferring over (loan modifications
in-progress, prior loss mitigation documentation)?
It will be interesting to see how this progresses over time. The CFPB has
been very active as a regulator and has already issued a vast amount of
new rules in a very short period of time. If the CFPB's past moves
are any indicator, then we can expect that this round of regulation will
require notice and transparency on the part of servicers.
You can read the CFPB bulletin
here. H/T to the
CFPB Monitor for spotting the bulletin.