The Consumer Financial Protection Bureau just fired a shot across the bow of the country’s mortgage servicers after it found that some servicers are using outdated computer systems that could run them afoul of CFPB rules.
The CFPB issued a special supervision report Wednesday focused specifically on mortgage servicers, stating that its investigators discovered that some mortgage services are currently using “failed technology” that has already “harmed” some consumers.
The CFPB said that its investigations uncovered numerous violations of its rules because of deficient technology and process breakdowns at mortgage servicers.
Specifically, the CFPB said that its examiners identified problems with loss mitigation and servicing transfers.
The CFPB report notes that there has been improvement in the mortgage servicing industry in the last several years, but states that the industry has more work to do.
“Mortgage servicers can’t hide behind their bad computer systems or outdated technology. There are no excuses for not following federal rules,” said CFPB Director Richard Cordray. “Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.”
In 2013, the CFPB established mortgage servicing rules designed to protect consumers against many of the practices that plagued the mortgage servicing industry during and after the housing crisis.
According to the CFPB, the rules require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments, and correct errors on request.
The rules also include protections for struggling homeowners, including those facing foreclosure.
The CFPB notes that compliance with many of these requirements necessitates strong policies and procedures related to systems and technology, and with those requirements come necessary investments.
But the CFPB states that some servicers have not properly invested in the technologies and systems needed to comply with the Bureau’s servicing rules.
According to the CFPB report, which covers investigations that took place between January 2014 and April 2016, the investment made by the mortgage servicing industry “have not been sufficient across the marketplace” to ensure compliance with the CFPB rules.
The CFPB report states that its examiners found that “outdated and deficient technology" poses risks to consumers at a “number of mortgage servicers.”
Additionally, the CFPB noted that several mortgage servicers “lack proper training, testing, and auditing of their computer systems and software platforms and those of their service providers.”
As a result of servicers’ “insufficient investment” in technology, several servicing problems continue to harm consumers, including: information about loan modifications that is “late, incorrect, or deceptive due to technological breakdowns or malfunctions,” and consumers who “get the runaround” when loans transfer to a new servicer with incompatible computer systems.
According to the CFPB, its examiners found problems with loan modification acknowledgement notices, including sending them too late and having incorrect information or deceptive statements.
Examiners found one or more servicers failed to send any acknowledgement notices due to a repeated processing platform malfunction over a significant period of time, the CFPB said, adding that these breakdowns caused delays in converting trial modifications to permanent modifications, resulting in harm to borrowers.
Additionally, the CFPB noted that transferring loans during the loan modification process heightens risks to consumers, including the risk that documents and information might not be accurately transferred to the new servicer.
The CFPB said that its examiners found that a number of servicers had incompatible technology platforms that led, in part, to the new servicers failing to identify and honor modification agreements already in place.
“The magnitude and persistence of compliance challenges since 2014, particularly in the areas of loss mitigation and servicing transfers, show that while the servicing market has made investments in compliance, those investments have not been sufficient across the marketplace,” the CFPB states in its report.
“Outdated and deficient servicing technology continues to pose considerable risk to consumers in the wider servicing market,” the CFPB continues.
“These shortcomings are compounded by lack of proper training, testing, and auditing of technology-driven processes, particularly to handle more individualized situations related to delinquencies and loss mitigation processes,” the CFPB report continues. “None of these problems is insurmountable, however, with the proper focus on making necessary improvements, especially in the information technology systems necessary for effective implementation.”
The CFPB report isn’t all doom and gloom, as the regulator notes that some servicers made “significant improvements” in the last several years, noting that some servicers are enhancing and monitoring their service platforms, increasing staff training, improving coding accuracy, auditing, and allowing for greater flexibility in operations.
For example, one or more servicers had tools in place to search, review, and track complaint records for potential regulatory violations, the CFPB noted.
One or more servicers also created a complaint governance committee to oversee all customer complaints to ensure they receive appropriate treatment, the CFPB added.
“However, such improvements have not been uniform across market participants and supervision continues to observe compliance risks, particularly in the areas of loss mitigation and servicing transfers,” the CFPB report concludes. “A growing point of emphasis for supervision in achieving needed improvements in servicer compliance will be to require servicers to submit specific and credible plans describing how changes in their information technology systems will offer assurance that they can systematically and effectively implement the changes made to resolve the issues identified by supervision.”