After a year adjusting to new rules issued by the Consumer Financial Protection Bureau, some in the mortgage industry are still not up to code, the CFPB's latest supervision report found.
The bureau’s eighth edition of supervisory highlights covers activities between January 2015 and April 2015, and resulted in remediation of $11.6 million to more than 80,000 consumers.
“We are extremely concerned that one year after the CFPB’s mortgage servicing rules went into effect we are still finding runarounds and illegal dual-tracking,” said CFPB Director Richard Cordray.
“Consumers deserve to be treated with honesty and integrity, and our rules require that servicers give borrowers a fair process when they try to save their homes. The CFPB will continue to stand beside consumers to make sure mortgage servicers are following the law,” Cordray added.
Under the Dodd-Frank Act, the CFPB has authority to supervise banks and credit unions with more than $10 billion in assets and certain nonbanks.
The CFPB’s last report resulted in remediation of $19.4 million to more than 92,000 consumers, along with six mortgage origination violations.
Here are the six mortgage origination violation trends the CFPB found:
1. Failing to establish and maintain written policies and procedures pursuant to the Loan Originator Rule
During the examination process Supervision determined that one or more supervised entities violated Regulation Z by failing to establish written policies and procedures as required by the rule. Specifically, Supervision found written policies on loan originator compensation and qualification and identification requirements without written procedures instructing employees on how to comply with the written policies. Supervision directed one or more supervised entities to develop, implement and maintain written procedures that provide comprehensive guidance to ensure and monitor compliance with the Loan Originator Rule as required by Regulation Z.
2. Failing to comply with disclosure requirements concerning the RESPA list of homeownership counseling organizations
During one or more examinations, examiners found that supervised entities did not fully comply with the disclosure requirements of Regulation X by failing to provide the list of housing counseling agencies to consumers. In particular, the housing counseling agencies lists did not contain the website address for each listed housing counseling agency because the vendors accidentally omitted the website data field. The supervised entities took appropriate actions to correct these violations.
3. Failing to fully comply with Regulation X requirements for the GFE
In one or more recent examinations, Supervision found the following violations of Regulation X: Failing to provide the consumer a GFE within three business days of receipt of a complete application; Failing to provide the consumer a timely revised GFE within three business days of receiving information to establish a changed circumstance; Failing to include all fees on a GFE.
4. Failing to fully comply with Regulation X requirements for completion of the HUD-1
In examining financial institutions, Supervision cited one or more instances of failure to ensure that the HUD-1 settlement statement accurately reflects the actual settlement charges paid by the borrower.
Generally, this violation was indicative of weaknesses in training, monitoring and corrective action, and compliance audit. Supervision directed one or more supervised entities to review their loan files and refund the appropriate amounts to affected customers.
5. Deceptive practice from overly broad release in home equity installment loan agreements
Examiners concluded that such a general waiver provision is a deceptive practice because it implies that the borrower is agreeing to a waiver that is unenforceable as to any claims based upon a Federal statute. A reasonable consumer might be misled into believing that by signing the note they had waived all notices or demands in connection with the delivery, acceptance, performance, default or enforcement of the note and would therefore be less likely to assert his or her Federal statutory rights. Supervision directed the supervised entities to cease requiring consumers to sign note agreements with waivers that appear to waive rights that may include Federal statutory claims or defenses and provide borrowers who received the broad waiver language with a more limited waiver.
Click the next page to see the violation trends for mortgage servicing.
Here are four mortgage servicing violation trends the CFPB found:
Check the report for the full list of violations.
1. Loss mitigation:
Regulation X sets forth requirements for soliciting, completing, and evaluating loss mitigation applications. As part of these requirements, servicers must notify borrowers in writing within five days after receiving a loss mitigation application acknowledging that it received the application, and stating whether it is complete or incomplete. If the application is incomplete, the servicer must list in its notice the additional documents and information the borrower must submit to complete the application, often called “acknowledgement notices.”
Examiners found that at least one servicer sent borrowers loss mitigation acknowledgment notices requesting documents, sometimes dozens in number, inapplicable to their circumstances and which it did not need to evaluate the borrower for loss mitigation
2. Foreclosure Process
In reviewing the loss mitigation and foreclosure process, examiners also found certain unfair and deceptive practices. At least one servicer sent notices of intent to foreclose to borrowers already approved for a trial modification and before the trial modification’s first payment was due without verifying whether borrowers had a pending loss mitigation plan before sending its notice.
CFPB examiners found at least one servicer sent notices warning borrowers who were current on their loans that foreclosure would be imminent.
3. Regulation Z disclosures
Regulation Z requires servicers to send periodic statements each billing cycle that display clearly and conspicuously in writing, content that includes the account’s transaction history encompassing any activity that causes a credit or debit to the amount currently due
4. Homeowners Protection Act
The Homeowners Protection Act requires automatic termination of borrower-paid private mortgage insurance (PMI) when the mortgage balance is first scheduled to reach 78% of the original value of the property securing the loan, if the borrower is current on the termination date, or, if the borrower is not current, on the first day of the first month beginning after the date that the mortgagor becomes current. For fixed rate mortgages, the timing is based on the initial amortization schedule for the mortgage.