CFPB outlines mortgage servicing regulation strategy
The Consumer Financial Protection Bureau released an outline Thursday, describing how the agency's examiners will begin their oversight of mortgage servicing firms. Market participants can review the agency's Mortgage Servicing Examination Procedures online. The outline is part of the agency's broader CFPB Supervision and Examination Manual. CFPB said it's already conducting examinations under the agency's jurisdiction. The CFPB, which gained its mortgage servicing policing power from the Dodd-Frank Act, said it will begin its oversight role by focusing on loans already in default. Servicers encapsulate an important role in the life-cycle of the loan being that they process payments, modify loans, deal with foreclosures and are essentially the key point of contact for borrowers. Raj Date, special adviser to the Treasury on the CFPB, said Thursday the agency's examination of servicers will be examining the loan modification application process at servicing firms to ensure all clear alternatives to foreclosure are given to troubled borrowers. In addition, examiners will evaluate servicers on the processes in place for referring loans into foreclosure. The CFPB teams also will look at fees servicers charge to borrowers in default to ensure they are "not duplicative or otherwise illegal," the CFPB said in its statement. CFPB has authority through the Dodd-Frank Act to examine banks, thrifts and credit unions that possess more than $10 billion in assets. "Mortgage servicing has a huge impact on consumers and is a priority for the CFPB," said Raj Date, special adviser to the Secretary of the Treasury on the CFPB. "The mortgage servicing market has been bogged down by widespread reports of pervasive and profound consumer protection problems. We are going to take a close and measured look at whether servicers are following the law." As far as processing goes, Date said examiners will start their evaluations by pre-examining firms through data analysis, onsite examinations and direct communications with the servicers and prudential regulators. The agency will follow those preliminary probes with monitoring activity and, when needed, regulatory actions to deal with practices that may violate the law. A senior CFPB official said the agency sees the current servicer compensation model as an area of concern since it provides no incentives for firms to service troubled loans. But when asked if the CFPB will work in tandem with the FHFA, which already has two proposals on servicer compensation, the official said the most important thing for CFPB to do is to obtain a better understanding of what's occurring and to let that research inform the agency's next step. Write to Kerri Panchuk.