Tag Archives: Regulation X

Holding Servicers Accountable

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image by Rizkyharis

I submitted my comment to the Consumer Financial Protection Bureau regarding the 2013 RESPA Servicing Rule Assessment. It reads, substantively, as follows:

The Consumer Financial Protection Bureau issued a Request for Information Regarding 2013 Real Estate Settlement Procedures Act Servicing Rule Assessment. The Bureau

is conducting an assessment of the Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), as amended prior to January 10, 2014, in accordance with section 1022(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau is requesting public comment on its plans for assessing this rule as well as certain recommendations and information that may be useful in conducting the planned assessment. (82 F.R. 21952)

Before the RESPA Servicing Rule was adopted in 2013, homeowners had had to deal with unresponsive servicers who acted in ways that can only be described as arbitrary and capricious or worse.  Numerous judges have used terms such as “Kafka-esque” to describe homeowner’s dealings with servicers.  See, e.g., Sundquist v. Bank of Am., N.A., 566 B.R. 563 (Bankr. E.D. Cal. Mar. 23, 2017).  Others have found that servicers failed to act in “good faith,” even when courts were closely monitoring their actions.  See, e,g., United States Bank v. Sawyer, 95 A.3d 608  (Me. 2014). And yet others have found that servicers made multiple misrepresentations to homeowners.  See, e.g., Federal Natl. Mtge. Assn. v. Singer, 48 Misc. 3d 1211(A), 20 N.Y.S.3d 291 (N.Y. Sup. Ct. July 15, 2015).  The good news is that in those three cases, judges punished the servicers and lenders for their patterns of abuse of the homeowners. Indeed, the Sundquist judge fined Bank of America a whopping $45 million to send it a message about its horrible treatment of borrowers.

But a fairy tale ending for a handful of borrowers who are lucky enough to have a good lawyer with the resources to fully litigate one of these crazy cases is not a solution for the thousands upon thousands of borrowers who had to give up because they did not have the resources, patience, or mental fortitude to take on big lenders and servicers who were happy to drag these matters on for years and years through court proceeding after court proceeding.

The RESPA Servicing Rule goes a long way to help all of those other homeowners who find themselves caught up in trials imposed by their servicers that it would take a Franz Kafka to adequately describe.  The Rule has addressed intentional and unintentional abuses in the use of force-placed insurance and other servicer actions.

The RESPA Servicing Rule Assessment should evaluate whether the Rule is sufficiently evaluating servicers’ compliance with the Rule and implementing remediation plans for those which fail to comply with the vast majority of loans in their portfolios.  Servicers should not be evaluated just on substantive outcomes but also on their processes.  Are avoidable foreclosures avoided?  Are homeowners treated with basic good faith when it comes to interactions with servicers relating to defaults, loss mitigation and transfers of servicing rights?  The Assessment should evaluate whether the Rule adequately measures such things.  One measure the Bureau could look at would be court cases involving servicers and homeowners.  While perhaps difficult to do, the Bureau should attempt to measure the Rule’s impact on court filings alleging servicer abuses.

The occasional win in court won’t save the vast majority of homeowners from abusive lending practices.  The RESPA Servicing Rule, properly applied and evaluated, could.

 

Assessing RESPA

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image by Yoel Ben-Avraham

The Consumer Financial Protection Bureau issued a Request for Information Regarding 2013 Real Estate Settlement Procedures Act Servicing Rule Assessment. The Bureau

is conducting an assessment of the Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), as amended prior to January 10, 2014, in accordance with section 1022(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau is requesting public comment on its plans for assessing this rule as well as certain recommendations and information that may be useful in conducting the planned assessment. (82 F.R. 21952)

This is certainly a pretty obscure initiative, albeit one required by the Dodd-Frank Act. But it is worth determining what is at stake in it. The Request includes some additional background:

Congress established the Bureau in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).1 In the Dodd-Frank Act, Congress generally consolidated in the Bureau the rulemaking authority for Federal consumer financial laws previously vested in certain other Federal agencies. Congress also provided the Bureau with the authority to, among other things, prescribe rules as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws and to prevent evasions thereof. Since 2011, the Bureau has issued a number of rules adopted under Federal consumer financial law.

Section 1022(d) of the Dodd-Frank Act requires the Bureau to conduct an assessment of each significant rule or order adopted by the Bureau under Federal consumer financial law. The Bureau must publish a report of the assessment not later than five years after the effective date of such rule or order. The assessment must address, among other relevant factors, the rule’s effectiveness in meeting the purposes and objectives of title X of the Dodd-Frank Act and the specific goals stated by the Bureau. The assessment must reflect available evidence and any data that the Bureau reasonably may collect. Before publishing a report of its assessment, the Bureau must invite public comment on recommendations for modifying, expanding, or eliminating the significant rule or order.

In January 2013, the Bureau issued the ‘‘Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X)’’ (2013 RESPA Servicing Final Rule). The Bureau amended the 2013 RESPA Servicing Final Rule on several occasions before it took effect on January 10, 2014. As discussed further below, the Bureau has determined that the 2013 RESPA Servicing Final Rule and all the amendments related to it that the Bureau made that took effect on January 10, 2014 collectively make up a significant rule for purposes of section 1022(d). The Bureau will conduct an assessment of the 2013 RESPA Servicing Final Rule as so amended, which this document refers to as the ‘‘2013 RESPA Servicing Rule.’’ In this document, the Bureau is requesting public comment on the issues identified below regarding the 2013 RESPA Servicing Rule. (Id., footnotes omitted)

The Bureau will be evaluating servicer activities such as responses to loss mitigation applications and borrower notices of error. It will also be evaluating fees and charges; the exercise of rights by consumers under the rule; and delinquency outcomes.

The Bureau is requesting comment on some technical subjects relating to the assessment plan itself. But if you think you have something to add, you should submit comments by July 10th here.

CFPB Mortgage Highlights Fall ’15

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Mike Licht

The Consumer Financial Protection Bureau released its Fall 2015 Supervisory Highlights. In the context of mortgage origination, the CFPB found that

supervised entities, in general, effectively implemented and demonstrated compliance with the rule changes, there were instances of non-compliance with certain [rules] . . .. There were also findings of violations of disclosure requirements pursuant to the Real Estate Settlement Procedures Act (RESPA), implemented by Regulation X; the Truth in Lending Act (TILA), implemented by Regulation Z; and consumer financial privacy rules, implemented by Regulation P. (9, footnotes and sources omitted).

Specifically, it found that one or more entities failed to

  • “fully comply with the requirement that charges at settlement not exceed amounts on the good faith estimate by more than specified tolerances.” (10)
  • comply with the regulations governing HUD-1 settlement statements because of fees on the HUD-1 did match those on invoices; improper calculations on the HUD-1; and fees charged for services that were not provided, among other things.
  • provide required disclosures.
  • reimburse borrowers for understated APRs and finance charges, as required by Regulation Z.

In the context of mortgage servicing, the CFPB found that while it

continues to be concerned about the range of legal violations identified at various mortgage servicers, it also recognizes efforts made by certain servicers to develop an adequate compliance position through increased resources devoted to compliance. . . . Supervision continues to see that the inadequacies of outdated or deficient systems pose considerable compliance risk for mortgage servicers, and that improvements and investments in these systems can be essential to achieving an adequate compliance position. (15)

This is all well and good, but as I have noted before, it is hard to estimate how much of a problem exists from such a report — one or more entities did this, we are concerned about a range of legal violations of that . . .. I understand that the CFPB’s primary audience for this report are CFPB-supervised entities concerned with the CFPB’s regulatory focus, but this approach barely rises to the level of anecdote for the rest of us.

CFPB Mortgage Highlights

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Richard Cordray 2010

The Consumer Financial Protection Bureau issued its most recent Supervisory Highlights. The CFPB is “committed to transparency in its supervisory program by sharing key findings in order to help industry limit risks to consumers and comply with Federal consumer financial law.” (3)

There were a lot of interesting highlights relating to mortgage origination and servicing, including,

  • one or more instances of failure to ensure that the HUD-1 settlement statement accurately reflects the actual settlement charges paid by the borrower.
  • at least one servicer sent borrowers loss mitigation acknowledgment notices requesting documents, sometimes dozens in number, inapplicable to their circumstances and which it did not need to evaluate the borrower for loss mitigation.
  • one or more servicers failed to send any loss mitigation acknowledgment notices. At least one servicer did not send notices after a loss mitigation processing platform malfunctioned repeatedly over a significant period of time. . . . the breakdown caused delays in converting trial modifications to permanent modifications, resulting in harm to borrowers, and may have caused other harm.
  • At least one other servicer did not send loss mitigation acknowledgment notices to borrowers who had requested payment relief on their mortgage payments. One or more servicers treated certain requests as requests for short-term payment relief instead of requests for loss mitigation under Regulation X.
  • At least one servicer sent notices of intent to foreclose to borrowers already approved for a trial modification and before the trial modification’s first payment was due without verifying whether borrowers had a pending loss mitigation plan before sending its notice. As the notice could deter borrowers from carrying out trial modifications, it likely causes substantial injury . . .
  • at least one servicer sent notices warning borrowers who were current on their loans that foreclosure would be imminent. (14-18, emphasis added)

All of these highlights are interesting because they reflect the types of problems the CFPB is finding and it thus helps the industry comply with federal law. But from a public policy perspective, the CFPB’s approach is lacking. By repeating that each failure was found at “one or more” company, a reader of these Highlights cannot determine how widespread these problems are throughout the industry. And because the Highlights do not say how many borrowers were affected by each company’s failure, it is hard to say whether these problems are isolated and technical or endemic and intentional.

Future Supervisory Highlights should include more information about the number of institutions and the number of consumers who were affected by these violations.

Protecting Homeowners During Mortgage Servicing Transfers

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The Consumer Financial Protection Bureau has issued a Compliance Bulletin and Policy Guidance on Mortgage Servicing Transfers (Bulletin 2014-01). Mortgage Serving Transfers have been receiving a lot of attention (also here) recently from regulators as the servicing industry is going through many changes.

The CFPB is right to focus on the impact of the transfer of mortgage servicing rights on homeowners. Many complaints made directly to regulators and seen in foreclosure cases relate to the Kafkaesque treatment that homeowners receive as their servicer point-of-contact changes from interaction to interaction.

The Bulletin indicates that servicers will have to do a fair amount of planning to ensure that consumers are not harmed by the transfer of servicing rights. In particular, the CFPB will be watching to see that servicers are (WARNING:  Boring and Technical Language Alert!):

  • Ensuring that contracts require the transferor to provide all necessary documents and information at loan boarding.
  • Developing tailored transfer instructions for each deal and conducting meetings to
    discuss and clarify key issues with counterparties in a timely manner; for large transfers, this could be months in advance of the transfer. Key issues may include descriptions of proprietary modifications, detailed descriptions of data fields, known issues with document indexing, and specific regulatory or settlement requirements applicable to some or all of the transferred loans.
  • Using specifically tailored testing protocols to evaluate the compatibility of the
    transferred data with the transferee servicer’s systems and data mapping protocols.
  • Engaging in quality control work after the transfer of preliminary data to validate that the data on the transferee’s system matches the data submitted by the transferor.
  • Recognizing when the transfer cannot be implemented successfully in a single batch and implementing alternative protocols, such as splitting the transfer into several smaller transactions, to ensure that the transferee can comply with its servicing obligations for every loan transferred. (3)

As a bonus, the Bulletin provides an overview of statutes and regulations that govern the transfer of mortgage servicing.

The Servicing Field Is Wide Open

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The CFPB has proposed an additional comment to Regulation X to emphasize that that regulation does not preempt state regulation of mortgage servicing:

Proposed comment 5(c)(1)-1 would state further that nothing in RESPA or Regulation X, including the provisions in subpart C with respect to mortgage servicers or mortgage servicing, should be construed to preempt the entire field of regulation of the covered practices. The Bureau believes that this proposed addition to the commentary would clarify that RESPA and Regulation X do not effectuate field preemption of States’ regulation of mortgage servicers or mortgage servicing. The comment also makes clear that RESPA and Regulation X do not preempt State laws that give greater protection to consumers than they do. (12)

This proposed comment is pretty belts-and-suspenders given that preamble to the 2013 RESPA Servicing Final Rule said as much.  But it is still worth noting how different this approach is from the Bush years when large swaths of state consumer protection regimes were preempted by federal regulators. As the mortgage industry takes its post-Bust shape, states may begin to flex their muscles to address servicing practices that concern their residents. It will be interesting to see how this all plays out in the long game.