WASHINGTON — The official Consumer Financial Protection Bureau examiner manual released Thursday was timely in more ways than one.
The manual, which the bureau
"We're going to take a close and measured view to ensure servicers are in compliance with the federal financial laws," Raj Date, the bureau's acting chief, said in a conference call with reporters. "When necessary, examiners will work with the CFPB enforcement staff to take appropriate enforcement actions."
The bureau's focus on mortgage servicing in examination policies comes amid continued criticism of how servicers managed foreclosure documentation and loss mitigation. According to the manual, among the areas examiners will review for potential consumer violations are cases where a loan's ownership as well as servicing rights transfer to other entities; escrow disclosures; how servicers have handled customer complaints; and efforts to work out troubled loans.
"It's no surprise that the mortgage servicing market has been plagued by pervasive and profound consumer protection issues," Date said. "The CFPB is here to make consumer finance markets work for consumers, responsible providers and the economy as a whole."
But the manual also more broadly demonstrates just how the new bureau plans to influence large institutions through exams. Under the Dodd-Frank Act, the bureau has the authority to supervise banks with more than $10 billion in assets for compliance with consumer rules. The law also authorized the CFPB to supervise nonbanks, but not until a permanent director is in place. Yet the manual makes clear that the bureau plans to use the same procedures for nonbanks when that authority kicks in.
"It's probably one of the most important documents that the CFPB will issue, because it basically gives the ground rules in terms of how they're going to regulate the institutions in their jurisdiction," Kevin Petrasic, a partner with Paul, Hastings, Janofsky & Walker, said Thursday.
The manual says exams will be guided by three main principles: staying focused on consumers, using data to assist in supervision and being consistent in applying the bureau's policy.
To achieve that consistency, the manual said, "The CFPB will use the same procedures to examine all supervised entities that offer the same types of consumer financial products or services, or conduct similar activities."
Initial offsite reviews will include examiners requesting documents from an institution to help set the scope of the onsite portion of the exam. Examiners visiting firms will observe the daily business of a company, conduct interviews and consult with other staff at the bureau about any follow-up actions that may be necessary. Yet the manual emphasized the need to keep supervisory information and conclusions reached by examiners "highly confidential."
In addition to regular exams, the bureau also plans to conduct target reviews, focusing on a particular situation at an institution, as well as horizontal reviews, which will look across multiple institutions to examine issues relating to a particular product.
Yet officials stressed that both the mortgage servicing exam procedures and the entire supervision manual are meant to be iterative, and will change over time as the bureau receives feedback from the industry and other members of the public. Signaling that the document will be a work in progress, the bureau labeled the manual "Version 1.0" on its Web site.
Still, Date said it was important for companies to be prepared for the nature of CFPB exams.
"We want the company to be supervised to know what we expect," he said. "Those expectations are not new; most of them we inherited from the seven different federal agencies that handed consumer financial protection duties to us on July 21."
In the mortgage-servicing section, the manual laid out specific guidelines for how servicers respond to troubled borrowers.
Date said examiners will review applications for loan modifications, including whether the information provided to consumers about foreclosure alternatives is accurate and clear.
Examiners will also review the process for designating a loan for foreclosure, including ensuring that servicers have ways to verify a borrower is actually in default.
"Examiners should review consumer complaints and call specific complaining consumers to interview them regarding their experiences," the manual says. "Examiners should determine whether their complaints were resolved adequately, and whether they were resolved in a timely manner."
