Borrowers Could Suffer in Servicing Transfers, CFPB Warns

WASHINGTON — The Consumer Financial Protection Bureau issued a bulletin Tuesday warning mortgage servicers of potential repercussions if consumers are harmed when servicing rights change hands.

The bulletin cautions servicers that CFPB examiners will be on the lookout for cases where borrowers get the "runaround" after servicing rights transfer from one company to another, particularly for borrowers awaiting a trial modification or other loss mitigation steps. The bureau said servicers that handle bigger transfers should be prepared to explain their plans to examiners for complying with the bureau's recent servicing rule, both before and after the transfer occurs. The agency warned that servicers not complying with legal measures could be subject to enforcement action.

"Servicers engaged in significant servicing transfers should expect that the CFPB will, in appropriate cases, require them to prepare and submit informational plans describing how they will be managing the related risks to consumers," the bulletin said. "The CFPB is continuing to monitor the mortgage servicing market and may engage in further rulemaking in this area."

The CFPB's new mortgage servicing rules that went into effect in January were meant to ensure, among other things, that companies transferring servicing rights keep accurate records on borrowers and transfers do not result in interruptions for consumers awaiting modifications. However, CFPB officials have remained concerned about the potential for error with mortgage servicing transfers that involve massive amounts of loans. Some consumers have struggled to get workouts after their loans could not be tracked.

"At every step of the process to transfer the servicing of mortgage loans, the two companies involved must put in appropriate efforts to ensure no harm to consumers. This means ahead of the transfer, during the transfer, and after the transfer," said CFPB Director Richard Cordray in a press release. "We will not tolerate consumers getting the runaround when mortgage servicers transfer loans."

The new bulletin provides examples on how servicers should treat mortgages before and after a transfer is completed. For example, it said examiners may want servicers to provide specific "tailored" instructions for individual loans before they are transferred, and to conduct meetings with parties involved in a transfer, potentially months before the transfer occurs. Examiners will also look for the servicers to have post-transfer policies in place to make sure the valid data has transferred correctly, the bulletin said.

The CFPB also said in its release that "examiners will carefully scrutinize" mortgage servicing transfers involving loans where loss mitigation is pending or modification plans had been approved before the transfer.

The bulletin lists eight items that examiners will be seeking in the compliance plans. They include details of how the servicing platforms store information; how the servicer will test its system to ensure mortgage transfers are accurate; how it will identify and correct errors; and the total number of loans and servicing volume in a transfer.

The CFPB said it released the bulletin rather than conduct a formal rulemaking process — which would have required feedback from the public — because the agency, it said, is not imposing any new regulatory requirements that were not issued in prior regulation.

"The CFPB has determined that this compliance bulletin and policy guidance does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements on covered entities or members of the public that would be collections of information requiring OMB [Office of Management and Budget] approval under the Paperwork Reduction Act," the bulletin said.