Banks and nonbanks just aren't getting it done when it comes to mortgage servicing and following federal laws. That's the conclusion drawn by a report Â issued by the Consumer Financial Protection Bureau (CFPB).
"Our examinations of banks and nonbanks allow us to correct problems before more consumers are affected," said CFPB Director Richard Cordray. "Today's report highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that nonbanks are following federal law. Fixing both is a priority for us."
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB supervises depository institutions and credit unions with total assets of more than $10 billion, and their affiliates. It also has authority to supervise nonbanks regardless of size in certain specific markets: payday lenders, private education lenders, and mortgage companies including originators, brokers, and servicers. For other nonbank markets for consumer financial products or services, the CFPB has the authority to supervise "larger participants."
The report is part of a series of supervision reports that the CFPB issues regularly. It highlights examination work completed between November 2012 and June 2013.
Mortgage servicing problems
Mortgage servicers are responsible for collecting payments from mortgage borrowers on behalf of loan owners. They also typically handle customer service, escrow accounts, collections, loan modifications and foreclosures. In supervising both bank and nonbank servicers, CFPB examiners have uncovered problems that can be harmful to consumers. These include:
In all cases where the CFPB found mortgage servicing problems, examiners alerted the company to its concerns, specified necessary remedial measures, and, when appropriate, opened CFPB investigations for potential enforcement actions. Corrective measures included making sure that important papers were filed appropriately, that servicers improved their policies and procedures governing the handling of loans in loss mitigation, and that consumers were treated according to the law.
The CFPB has also directed servicers to engage in specific corrective actions appropriate to the circumstances, such as: reviewing loss mitigation decisions and related fees or charges to borrowers to determine whether any reimbursement was appropriate; conducting periodic testing to monitor areas of concern; and providing reports to the CFPB on their progress completing the corrective actions.
Nonbanks lack compliance management systems
The CFPB expects the companies it supervises -- regardless of size -- to have fully developed compliance management systems to ensure all federal consumer financial protection laws are followed.
Prior to the CFPB's existence, many supervised nonbanks had not been subject to federal or even state examinations. CFPB examiners found that many nonbanks are more likely to lack robust compliance management systems. The investigation found that many nonbank institutions are:
Missing a comprehensive consumer compliance program: The CFPB found that often individual branches of a business were looking out for relevant federal laws without an overarching system in place at the company. This creates a lack of consistency in following the laws across products and across locations. The result can be erratic treatment of consumer problems. It can also mean that root causes of regulatory violations go undetected.
Lacking formal policies and procedures: Not having formal, written documents that both detail consumer compliance responsibilities and instruct employees on the appropriate methods for executing these responsibilities can lead to inconsistencies, sloppy recordkeeping, and ultimately, consumer harm because nobody at the institution is clearly responsible to make sure laws are being followed.
Forgoing independent consumer compliance audits: Independent audits are a good way for a company to routinely conduct quality-control checks on its operations. A compliance audit program provides a board of directors or its designated committees with information about whether policies and standards are being implemented. Without such a program, it is difficult to recognize any significant deficiencies in an institution's compliance management system.