When the servicing on a home loan is being transferred, both the new servicer and the old servicer have certain obligations in order to ensure a smooth process for the borrower.
The Consumer Financial Protection Bureau is concerned about the potential risks to borrowers on loans where the servicing is being transferred from one company to another.
The heightened concern by the regulator is due to an ongoing high volume of servicing transfers between companies.
So the CFPB has outlined expectations for servicers during the entire transfer process in CFPB Compliance Bulletin 2014-01. With the bulletin, servicers should have a better understanding of what examiners will be looking for.
Companies that don’t fulfill their legal obligations will be subject to appropriate actions and potentially face appropriate corrective measures — including remediation to harmed consumers.
Servicers with a significant volume of transfers should be prepared for the bureau to require them to prepare and submit informational plans about how risks to borrowers will be minimized.
“At every step of the process to transfer the servicing of mortgage loans, the two companies involved must put in appropriate efforts to ensure no harm to consumers,” CFPB Director Richard Cordray said in the statement. “This means ahead of the transfer, during the transfer, and after the transfer.”
The old and new servicers need to hold meetings, test protocols and maintain quality controls during the entire transfer process. When the transfer can’t occur in a single batch, it needs to be broken up into smaller transaction.
Loans in loss mitigation need to be flagged, and the transferee needs to ensure all required loss mitigation documentation is received before boarding. The CFPB cited situations where new servicers wrongly required additional information for a loan modification application in process.
Prior servicers that wait until after boarding to deliver loan documents that were in their possession prior to boarding will be scrutinized by examiners.
After the transfer, a process must be implemented to validate data and verify a successful transfer. The process must ensure that loss mitigation documents are accurately passed to the new servicer.
The new servicer will be obligated to comply with error resolution requirements even if the error was made by the former servicer.
As soon as boarding is complete, the new servicer must be able to identify which borrowers are at least 45 days delinquent and ensure that employees can provide the borrowers with accurate information and payment history.
Even though a delinquent loan is being transferred, the CFPB will scrutinize evaluations of loss mitigation applications that take longer than 30 days.
“We will not tolerate consumers getting the runaround when mortgage servicers transfer loans,” Cordray added.
The full CFPB bulletin is online at www.consumerfinance.gov/f/201408_cfpb_bulletin_mortgage-servicing-transfer.pdf.
