CFPB Highlights Mortgage Servicing Deficiencies
The CFPB found "persistent" unfair, deceptive and abusive acts or practices ("UDAAPs") in supervisory examinations of the residential mortgage servicing industry.
In an edition of Supervisory Highlights, the CFPB reported on the results of examinations completed between April 1, 2023 through December 31, 2023, a period of increasing default servicing activity. The CFPB found that mortgage servicers committed regulatory violations "while processing payments by overcharging certain fees, failing to adequately describe fees in periodic statements, and not making timely escrow account disbursements." Additionally, examiners found that mortgage servicers engaged in other UDAAPs, such as sending deceptive loss mitigation eligibility notices to consumers.
The CFPB examiners also found that mortgage servicers violated several of Regulation X's ("Real Estate Settlement Procedures Act") loss mitigation provisions, including:
- unfair charges for property inspections prohibited by investor guidelines;
- unfair late fee overcharges;
- failing to waive existing fees following acceptance of COVID-19 loan modifications;
- failing to provide adequate description of fees in periodic statements;
- failing to make timely disbursements from escrow accounts;
- deceptive loss mitigation eligibility notices;
- deceptive delinquency notices;
- live contact and early intervention violations; and
- failing to retain records documenting actions taken on mortgage loan accounts.
The CFPB said it is currently reviewing Regulation X’s existing framework to identify ways to simplify and streamline the mortgage servicing rules.
The CFPB stated that examiners continue to find "supervised mortgage servicers assessing junk fees, including unnecessary property inspection fees and improper late fees," and on servicer's "ability to appropriately respond to consumer requests for assistance, especially consumers at risk of foreclosure."
Commentary
This mortgage servicing examination work builds on prior CFPB exam work combatting junk fees writ large in the consumer financial markets, including mortgage servicing. This past October, the CFPB announced that its examination work from February to August of 2023 resulted in $140 million refunded to consumers for unlawful junk fees in the areas of bank account deposits, auto loan servicing and international money transfers. According to the CFPB, overdraft and non-sufficient funds fees have declined by more than $6.1 billion since the CFPB began scrutinizing junk fees.
The CFPB has been looking at ways to streamline mortgage servicing rules. The CFPB recently announced that it is working to address other anticompetitive mortgage fees, including those charged in connection with closing costs. Expect the findings in this supervisory report to inform any potential changes to Regulation X’s existing framework.