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Politics & MoneyMortgage

CFPB begins cracking down on mortgage servicers

The agency began sending data requests to companies on how they are handling forbearance programs

The Consumer Financial Protection Bureau (CFPB) is making good on its threats to police mortgage servicers.

In late January, the agency released a series of authority actions warning servicers that they need to do right by consumers who need access to forbearance programs. According to a new report from Reuters, the government watchdog is already actively investigating several servicers.

The agency sent data requests to mortgage servicers on how they are handling forbearance programs and whether the temporary debt relief is likely to get borrowers back on their feet, unnamed sources told Reuters. According to Reuters’ sources, the CFPB also opened a number of probes into how servicers are handling forbearance requests.

Specifically, the agency is examining how many and which borrowers are in forbearance, whether loan modifications will succeed in getting borrowers repaying, if servicers have been obstructing or delaying forbearance requests or granting only partial relief, and if some servicers have been discriminating against borrowers based on race or ethnicity, whether deliberately or inadvertently, sources said.

“We are very concerned and we’re watching closely,” said one of the people to Reuters. “Our supervision team is robustly asking for more data than ever from servicers.”

The lenders were not identified by name.

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Like many other government agencies, the CFPB relaxed a number of policies to aid consumers at the onset of the pandemic. However, with the rollout of successful vaccines and unemployment dropping below half its pandemic-era peak, the CFPB began to rollback on flexibilities and take a more direct approach to servicers actions.

On March 31, the CFPB rescinded seven of its temporary policies put in place due to COVID-19, and said it intends to exercise the full scope of its supervisory and enforcement authority provided under the Dodd-Frank Act.

“Companies should have had sufficient time to adapt to the pandemic and should now be able adequately to comply with the law and respond to enforcement actions or supervisory activities without the flexibility afforded under the statement,” the Bureau said after withdrawing its signature from the Statement on Bureau Supervisory and Enforcement Response to COVID-19 Pandemic.

The CFPB withdrew its signature from an interagency statement that allowed for leniency on loan modifications and reporting for financial institutions that was signed by the agency in April 2020, alongside the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency.

The CFPB also withdrew its name from a statement outlining flexibilities on industry appraisal standards, rolled back leniency on credit reporting, and rescinded flexibilities on reporting Home Mortgage Disclosure Act data.

The next day the CFPB released a compliance bulletin warning servicers that “unprepared is unacceptable.” The agency said it will closely monitor how servicers work to prevent a wave of foreclosures from occurring this fall and listed a number of expectations it intends for servicers to uphold.

Four days later, on April 5, the CFPB proposed taking the issue into its own hands and released a notice of proposed rulemaking that would amend Regulation X to provide a special pre-foreclosure review period prohibiting servicers from starting foreclosures until after December 31, 2021. The move was met with mixed reviews – some in the industry said the agency was overstepping its bounds.

At the peak of forbearance, nearly 6 million borrowers were in some form of forbearance, but over half of those homeowners have since exited. According to MBA data, close to 86% of those who have exited did so with some sort of plan in place or they simply continued making their payments while they were in forbearance.

“I think the math speaks for itself how well the forbearance program has worked, and it’s one of the few times in my career that I have seen a government-initiated program adopted as well and executed as well by the industry as this one,” said Rick Sharga, executive vice president of RealtyTrac.

Following the news that the CFPB is already cracking down, a spokesperson told Reuters that the CFPB’s main focus is to protect consumers financially harmed by the COVID-19 pandemic.

“Part of that work is using our supervisory authority to ensure mortgage servicers are treating borrowers fairly and meeting their responsibilities under federal law,” the spokesperson said.

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