The Consumer Financial Protection Bureau has begun its rulemaking process for mortgage servicing, starting with a description of the rules they will consider. The formal proposal of servicing rules will come this summer, and the final rules will get promulgated in January 2013.
This would supersede the mortgage servicing standards from the foreclosure fraud settlement, as well as outlast them, because while the settlement standards expire after 3 1/2 years, the rules from the CFPB can be permanent. CFPB has statutory authority under Dodd-Frank to adopt rules for the servicing industry, so the vaunted “servicing standards” in the settlement will become mostly superfluous, or at least a stopgap.
With the theme of putting the “service” back in mortgage servicing, CFPB released a factsheet of the rules they will consider. They fall into two buckets: transparency and accountability.
On the transparency side, CFPB wants clear monthly mortgage statements with a complete breakdown of payments, long warning times before interest rate adjustments on adjustable-rate mortgages, alerts for delinquent borrowers of services like counselors and foreclosure mitigation programs, and options for borrowers before servicers install “force-placed” insurance, which is when servicers take it upon themselves to install homeowner’s insurance on a property, usually at a steep mark-up.
On the accountability and fairness side, CFPB’s rules would include:
• Immediately crediting payments to consumer accounts, in the proper manner, with interest and principal first before fees or escrow.
• Accessible and presentable records that inspectors and borrowers can review.
• An actual review process for errors, where the servicer acknowledges receipt of a complaint, conducts an investigation, and is required to inform the customer of the resolution.
• A dedicated foreclosure prevention team within the servicer that troubled borrowers can access.
A more detailed explanation of the rules under consideration is here.
It’s amazing that some of these elements don’t exist already, but mortgage servicing hasn’t had a regulator, at least not at the federal level. And the fact that none of these rules are a feature of their conduct today shows how these rules would really rebuild servicing from the ground up. They differ in some ways from the “single point of contact” and “no dual track of loan modification and foreclosure” rules that we normally hear about from reformers, but in a way they’re more comprehensive, because they actually envision every borrower’s interaction with their servicer, whether they’re current on the loan, about to have their interest rate adjust, or whether their servicer simply ripped them off.
Again, the plan is for a notice of proposed rulemaking filed in the Federal Register sometime this summer, with the rule finalized by January 21, 2013 (the day after the next inauguration). There would be some ramp-up for implementation, but no longer than a year, and the decision on the time frame has not been made.
In remarks today, CFPB Director Richard Cordray notes that the servicing industry “has never had a requirement, or a strong incentive, to meet the needs of consumers.” The industry was built for speed and not accuracy, and in the wake of the housing collapse started cutting back on staff rather than increasing to meet needs. Cordray sounded appropriately disgusted by servicers today:
Consider for a moment the impact of these problems on families. We are not talking here about a $10 overcharge on a utility bill. We are talking about the largest single investment that people will make in their lifetimes, and a matter that goes far beyond a mere economic investment. We are talking, specifically, about people’s homes. A place consecrated by a deep bond that only the passage of time – and the precious enjoyment of time – can create in an enduring way. The swing-set your children loved. The deck you built with your own hands. The door that swung shut behind you every day you went to work, to earn the money to make the payments to keep the place you called your own.
And it is not just consumers who suffer. Mortgage investors do not benefit from a broken system where servicers do not fulfill their obligations or make reasonable efforts to mitigate losses. And this failed business model widened the pain of the housing crisis and destroyed an incalculable measure of consumer trust in financial businesses, perhaps in a lasting way.
Hopefully he will bring the same amount of disdain to the process of unwinding these servicers and creating a model that can work.
More from the Washington Post and McClatchy.





11 Comments


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Poetic. Wow.
Cordray, I kind of have a man-crush on you now.
Kris, it is indeed poetic.
Watch the Republicans start squeling now and do everything they can to stop this in it’s tracks.
Wow, the very notion that the mortgage servicing industry should be obligated to actually “serve” customers is so radical and onerous! So much for the natural proclivity for businesses and markets to “self-regulate”.
Remember to include Obama LLC in stereo squealing. It’s his administration undercutting tougher investigations of any State AJ.
It looks like they are not going to require that the monthly statements include a very crucial piece of information: THE NAME OF THE ENTITY THAT OWNS THE NOTE AND MORTGAGE.
The servicers must be required to list who owns the note and mortgage on the statements. That knowledge would have saved a lot of grief for a lot of homeowners…ones where the foreclosure documents showed the wrong owner. In the old pre-MERS days, the homeowner could have found that information in the county land records. Now they have no way of finding out, and at minimum the servicer should be required to tell them.
I believe we all have a right to know to whom we owe money. The servicer is just the middleman.
(sorry about the comment appearing twice…a database error message popped up and it said try again. I did and it posted twice. Hopefully this will replace the duplicate. I’ve never had that problem with commenting. Hopefully this will replace the second comment.)
I know that it is not popular to defend mortgage servicers, however not every servicer is ‘bad’.
It is to our advantage for customers to know how their payments have been posted because it avoids costly reversals in the future. Same for lead times on adjustable rate loans or payment changes for loans with escrow which also may change annually.
We get $0 revenue from force placed insurance.
Payments are always posted on the day received and if oe is missed it is automatically effective dated.
Customers have access 24/7 to all account information online. They can make payments including partial payments online – no fee charged for online payments.
We have a formal complaint review and response process that is controlled by law.
We guarantee that a borrower who is delinquent and calls us will be talking to a live person in less than one minute.
We are built for both speed and accuracy because they are not a zero-sum process. A highly accurate service costs less than an error filled process.
We have a very strong economic incentive to meet the needs of our customers. The value of a customer that stays with us over their entire borrowing life cycle is worth 500% than the borrower that pays off and goes elsewhere. Concern for the customers’ needs will helps us keep them for life.
Through the melt-down our TOTAL delinquency never exceeded 3.5%
We look at whatever the CFPB does as an opportunity to build our business.
Hope they publish the positive examination results with names.
It’s certainly reassuring that the “rule” will be finalized on January 21, 2013 and that the implementation ramp-up would be no longer than a year. This, of course. assumes that Obama is reelected and doesn’t regard this as another campaign promise. I’m not holding my breath, but “I’d gladly pay you Tuesday for a hamburger today”, ala Wimpy.
I am glad you think your company does a good job. I hope it is so and agree that good business practices should make you money in the long run.
You really should read this blog and find out what your low life competition is doing to unsuspecting home owners:
msfraud.org
Many servicers are putting people in forclosure on purpose in order to strip equity and levy profitable fees.
Look for the now predatory student loan industry to do the same as they already have to my best friend.
Thanks for the lead. I will visit the site some time today. I know there are bad actors out there, just wanted to make the point that not all are bad.
Are you in favor of a servicing relationship that allows a borrower to have the servicing of their loan transferred from one servicer to another at no.cost to the borrower?