One thing we don’t have a great handle on is how the Consumer Financial Protection Bureau will play a role in the foreclosure fraud settlement, and more to the point the ongoing issues in the mortgage servicing industry. CFPB Director Richard Cordray goes some way to explaining their perspective in a Politico op-ed.
The CFPB is implementing rules and helping to articulate standards so we never again end up in the mess we still see around us today. This is tough work that will take careful thought and time. But we also recognize we can help struggling homeowners now. That is why we are taking action on the mortgage servicing front to help consumers as quickly as possible [...]
The mortgage servicing settlement has received a lot of attention. That settlement, which involves loans held in portfolio by the five largest mortgage servicers, is designed to address some of these continuing concerns. But there are also independent, nonbank institutions that tend to specialize in the servicing of subprime or delinquent loans. And they are not part of the settlement.
These nonbank servicers used to receive little or no oversight. The CFPB is changing that. Our new authority allows us to supervise both banks and nonbanks. Indeed, for the first time, the federal government will have the authority to look into the entire mortgage servicing market. This is a critical improvement: We will be able to monitor all players to make sure they abide by federal consumer financial laws.
The Dodd-Frank Act, which established the CFPB, requires us to put in place new mortgage servicing rules to protect consumers. For example, the law directs us to issue a rule requiring mortgage servicers to provide consumers with better information in their billing statements. The statement will be required to include the principal, the current interest rate, the next date on which the interest rate may change, a description of late payment fees and a telephone number and email address that may be used to contact the servicer.
In fact, CFPB released that draft mortgage statement today. It’s a one-page document, so some categories are a bit broad (“fees” are not broken down, for example, which I’d like to see). But it’s a pretty comprehensive statement that explains the monthly charges, where the money goes, the outstanding principal on the loan, the maturity date, the interest rate, a breakdown of past payments and fees and contact information for the servicer as well as HUD mortgage counselors. You could certainly imagine much more complex statements than this, so that’s definitely a plus.
CFPB is requesting public comment on the draft document, so you should get involved.
In his op-ed, Cordray also says that he plans to issue new regulations on “force-placed insurance,” the scam whereby mortgage servicers buy insurance for a borrower on a delinquent loan at an exorbitant rate based on supposition that insurance has lapsed. Usually the servicer gets a kickback from the insurance company in this scheme. He also mentioned new disclosures for “teaser rate” loans that recast higher after a period of years, with new notifications for when the rates will go up.
One thing I want to say about this is that it’s CFPB who will ultimately be responsible for cleaning up servicing, not the settlement with the five leading servicers. CFPB has the requirement right now to set out industry practices, and force compliance. The settlement changes none of that.
The other thing is that CFPB is really a strong tool to prevent the kind of horror show we’ve seen in the mortgage market from happening again. I hope they get tough on the kinds of errors we’re continuing to see in servicing.