The most basic level of the mortgage business is still plagued by abusive and error-prone business practices, according to a new report from the Consumer Financial Protection Bureau (CFPB). It found that the financial companies that manage mortgages employ sloppy paperwork processes, fail to communicate important information to homeowners, and often don’t even have staff or plans for ensuring they are in compliance with the rules.
The report, which draws on work the agency’s examiners did from November of last year through June of 2013, focuses on mortgage servicing companies — those that handle the actual repayment of loans, rather than the investment companies that package up and securitize mortgages to trade with one another. These companies have the most direct customer service responsibilities of any sector of the housing finance industry and are required to communicate with borrowers promptly and clearly when, for example, they sell a person’s mortgage to another servicing company.
CFPB examiners found that “sloppy account transfers” and “poor payment processing” still abound in the industry. Servicers frequently give “inadequate notice to borrowers of a change in address to send payments, resulting in late payments,” and many firms do not have clear protocols on how to handle key documents. Servicers are also supposed to take an active role in helping struggling homeowners find more manageable repayment plans where possible, but CFPB examiners found the industry flouts that responsibility. Applications for loan modifications take too long to process, requests for documents related to alternative payment options are confusing, duplicative, and inconsistent, and “deceptive communications to borrowers” about modification requests continue.
These sorts of endemic failures at the fundamental rubber-meets-road level of the mortgage business are a major driver of the foreclosure crisis. Many of the worst stories of wrongful foreclosure involve servicers failing to properly process on-time payments.
They were supposed to be curbed by new regulations and legal settlements with servicers. But the new CFPB report confirms that companies continue to violate the terms of the 2012 National Mortgage Settlement, as the settlement’s auditor had previously reported, and finds the same improper practices abound at companies that weren’t covered by that $25 billion deal. The CFPB also found that many mortgage servicers do not yet have systems in place to ensure they are complying with those rules and often decline to bring in independent compliance auditors who might help correct their failings. “When examiners identify these issues, CFPB expects corrective action,” the report says.