Notice2024-09713
Supervisory Highlights, Issue 33, Spring 2024
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 3, 2024
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB or Bureau) is issuing its thirty-third edition of Supervisory Highlights.
Full Text
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<title>Federal Register, Volume 89 Issue 87 (Friday, May 3, 2024)</title>
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[Federal Register Volume 89, Number 87 (Friday, May 3, 2024)]
[Notices]
[Pages 36779-36781]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-09713]
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CONSUMER FINANCIAL PROTECTION BUREAU
Supervisory Highlights, Issue 33, Spring 2024
AGENCY: Consumer Financial Protection Bureau.
ACTION: Supervisory Highlights.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its thirty-third edition of Supervisory Highlights.
DATES: The findings in this report cover select examinations regarding
mortgage servicing, that were completed from April 1, 2023, through
December 31, 2023.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at
(202) 435-7449. If you require this document in an alternative
electronic format, please contact <a href="/cdn-cgi/l/email-protection#eba8adbba9b4aa88888e989882898287829f92ab888d9b89c58c849d"><span class="__cf_email__" data-cfemail="f0b3b6a0b2afb193939583839992999c998489b093968092de979f86">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
1. Introduction
The residential mortgage servicing market exceeds $13 trillion in
current outstanding balances. When servicers do not comply with the
law, they impose significant costs on consumers.
The CFPB is actively monitoring the market for emerging risks
during a period of increasing default servicing activity since the end
of the COVID-19 pandemic emergency. The mortgage industry has grappled
with many challenges during this period, including increased requests
for loss mitigation, changes to housing policies and programs, and
staffing issues. Violations described in prior editions of Supervisory
Highlights raised concerns about servicers' ability to appropriately
respond to consumer requests for assistance, especially consumers at
risk of foreclosure. While mortgage delinquencies and foreclosure rates
remain near all-time lows, this may change in the future as consumers
grapple with higher levels of debt and affordability challenges due to
high rates and low housing supply. Foreclosure starts have risen in
recent months, increasing the risks that vulnerable consumers face.
The CFPB also continues to prioritize scrutiny of exploitative
illegal fees charged by banks and financial companies, commonly
referred to as ``junk fees.'' Examiners continue to find supervised
mortgage servicers assessing junk fees, including unnecessary property
inspection fees and improper late fees. Additionally, examiners found
that mortgage servicers engaged in other unfair, deceptive, and abusive
acts or practices (UDAAP) such as sending deceptive loss mitigation
eligibility notices to consumers.\1\ Mortgage servicers also violated
several of Regulation X's loss mitigation provisions.\2\
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\1\ 12 U.S.C. 5531, 5536.
\2\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
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The CFPB is currently reviewing Regulation X's existing framework
to identify ways to simplify and streamline the mortgage servicing
rules. The CFPB is considering a proposal to streamline the mortgage
servicing rules, only if it would promote greater agility on the part
of mortgage servicers in responding to future economic shocks while
also continuing to ensure they meet their obligations for assisting
borrowers promptly and fairly.
The findings in this report cover select examinations regarding
mortgage servicing, that were completed from April 1, 2023, through
December 31, 2023. To maintain the anonymity of the supervised
institutions discussed in Supervisory Highlights, references to
institutions generally are in the plural and related findings may
pertain to one or more institutions.
2. Supervisory Observations
2.1 Mortgage Servicing
Examiners found that mortgage servicers engaged in UDAAPs and
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, as in
prior editions of Supervisory Highlights, examiners identified
persistent UDAAP and regulatory violations at mortgage servicers
related to loss mitigation practices.
2.1.1 Unfair Charges for Property Inspections Prohibited by Investor
Guidelines
Mortgage investors generally require servicers to perform property
inspection visits for accounts that reach a specified
[[Page 36780]]
level of delinquency. Investor guidelines stipulate when servicers
should complete these property inspections. Servicers pass along the
cost of property inspections to the consumers; the fees for this action
generally range from $10 to $50.
Examiners found that servicers engaged in unfair acts or practices
by charging property inspection fees on Fannie Mae loans where such
inspections were prohibited by Fannie Mae guidelines. The CFPA defines
an unfair act or practice as an act or practice that: (1) causes or is
likely to cause substantial injury to consumers; (2) is not reasonably
avoidable by consumers, and (3) is not outweighed by countervailing
benefits to consumers or to competition.\3\
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\3\ 12 U.S.C. 5531, 5536.
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Fannie Mae guidelines prohibit property inspections if the property
is borrower-or tenant-occupied and one of the following applies: the
servicer has established quality right party contact with the borrower
within the last 30 days, the borrower made a full payment within the
last 30 days, or the borrower is performing under a loss mitigation
option or bankruptcy plan. Examiners found that in some instances a
servicer would charge a property inspection fee on Fannie Mae loans
even though the property was borrower-or tenant-occupied and the
servicer had established quality right party contact within 30 days,
the borrower had made a full payment within the last 30 days, or the
borrower was performing under a loss mitigation option. In total, the
servicers charged hundreds of borrowers' fees for property inspections
that were prohibited by Fannie Mae's guidelines, causing consumers
substantial injury. Consumers were unable to anticipate the property
inspection fees or mitigate them because they have no influence over
the servicer's practices. Charging improper fees has no benefit to
consumers or competition. In response to these findings, the servicers
corrected automation flaws behind some of the improper charges and
implemented testing and monitoring to address the others. The servicers
were also directed to identify and remediate borrowers who were charged
fees contrary to investor guidelines.
2.1.2 Unfair Late Fee Overcharges
Examiners found that servicers engaged in unfair acts or practices
by assessing unauthorized late fees.\4\ These errors occurred for one
of two reasons. First, in some instances servicers charged late fees
that exceeded the amount allowed in the loan agreement. Second, in some
instances servicers charged late fees even though consumers had entered
into loss mitigation agreements that should have prevented late fees.
Examiners found these practices constituted unfair acts or practices.
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\4\ Supervision previously reported a similar unfair act or
practice of overcharging late fees in Supervisory Highlights, Issue
29 (Winter 2023), available at: <a href="https://www.consumerfinance.gov/compliance/supervisory-highlights/">https://www.consumerfinance.gov/compliance/supervisory-highlights/</a>
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The servicers caused substantial injury to consumers when they
imposed these unauthorized late fees. Consumers could not reasonably
avoid the injury because they do not control how servicers calculate
late fees and had no reason to anticipate that servicers would impose
unauthorized late fees. Charging unauthorized late fees had no benefits
to consumers or competition. In response to these findings, servicers
refunded the fees and improved internal processes.
2.1.3 Failing To Waive Existing Fees Following Acceptance of COVID-19
Loan Modifications
Regulation X generally allows certain servicers to offer
streamlined loan modifications made available to borrowers experiencing
a COVID-19 related hardship based on the evaluation of incomplete loss
mitigation applications if the modifications meet certain
requirements.\5\ One requirement is that the servicer ``waives all
existing late charges, penalties, stop payment fees, or similar charges
that were incurred on or after March 1, 2020, promptly upon the
borrower's acceptance of the loan modification.'' \6\
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\5\ 12 CFR 1024.41(c)(vi)(A).
\6\ 12 CFR 1024.41(c)(vi)(A)(5).
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Examiners found that servicers offered streamlined COVID-19 loan
modifications but, in violation of Regulation X, failed to waive
existing fees after borrowers accepted the modifications. In response
to these findings, servicers are remediating consumers.
2.1.4 Failing To Provide Adequate Description of Fees in Periodic
Statements
Regulation Z requires servicers to provide billing statements that
include a list of all transaction activity that occurred since the last
statement, including, among other things, ``a brief description of the
transaction.'' \7\ Examiners found that servicers failed to provide a
brief description of certain fees and charges in violation of this
provision when they used the general label ``service fee'' for 18
different fee types, without including any additional descriptive
information. In response to these findings, the servicers implemented
changes to provide more specific descriptions of each service fee.
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\7\ 12 CFR. 1026.41(d)(4).
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2.1.5 Failing To Make Timely Disbursements From Escrow Accounts
Regulation X requires servicers to make timely disbursements from
escrow accounts if the borrower is not more than 30 days overdue.\8\
Timely disbursements are defined as payments made on or before the
deadline to avoid a penalty.\9\ Examiners found servicers attempted to
make timely escrow disbursements, but the payments did not reach the
payees. The servicers did not resend the payments until months after
the initial payment attempts. Some borrowers incurred penalties due to
the late payments, which the servicers only reimbursed after the
borrowers complained. Because the initial payments were unsuccessful,
and the second payments were late, the servicers did not make timely
disbursements and violated Regulation X. In response to these findings,
the servicers were directed to comply with this regulation and
remediate borrowers.
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\8\ 12 CFR 1024.17(k)(1).
\9\ Id.
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2.1.6 Deceptive Loss Mitigation Eligibility Notices
Examiners found that servicers engaged in deceptive acts or
practices when they sent notices to consumers representing that the
consumers had been approved for a streamlined loss mitigation option
even though the servicers had not yet determined whether the consumers
were eligible for the option. In fact, some consumers were ultimately
denied the option.
An act or practice is deceptive when: (1) the representation,
omission, act, or practice misleads or is likely to mislead the
consumer; (2) the consumer's interpretation of the representation,
omission, act, or practice is reasonable under the circumstances; and
(3) the misleading representation, omission, act, or practice is
material.\10\
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\10\ Consumer Financial Protection Bureau v. Gordon, 819 F.3d
1179, 1192 (9th Cir. 2016).
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The notices were misleading because the servicers had not yet
determined the consumers were eligible for the loss mitigation option.
Consumers reasonably interpreted the representations to mean that the
loss mitigation option was available to them. The representations were
material because consumers could have made budgeting decisions on the
false
[[Page 36781]]
assumption that they were approved for a loss mitigation option or were
discouraged from submitting complete loss mitigation applications or
taking other steps to cure their delinquencies and avoid foreclosure.
In response to these findings, the servicers reviewed affected
borrowers who remained delinquent to ensure they were considered for
appropriate loss mitigation options.
2.1.7 Deceptive Delinquency Notices
Examiners found that servicers engaged in deceptive acts or
practices when they sent notices informing certain consumers that they
had missed payments and should fill out loss mitigation applications.
In fact, these consumers did not need to make a payment because they
were current on their payments, in a trial modification plan, or had an
inactive loan (e.g., loan was paid off or subject to short sale). These
misrepresentations were likely to mislead consumers and it was
reasonable for consumers under the circumstances to believe that the
notices from their servicers were accurate. The representations were
material because they were likely to influence consumers' course of
conduct. For example, in response to the notice, a consumer may contact
their servicer to correct the error or fill out unnecessary loss
mitigation applications. In response to these findings, servicers are
implementing additional policies and procedures to ensure accuracy of
notices.
2.1.8 Loss Mitigation Violations
Regulation X generally requires servicers to send borrowers a
written notice acknowledging receipt of their loss mitigation
application and notifying the borrowers of the servicers' determination
that the loss mitigation application is either complete or incomplete
after receiving the application.\11\ Examiners found that servicers
violated Regulation X by sending acknowledgment notices to borrowers
that failed to specify whether the borrowers' applications were
complete or incomplete.
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\11\ 12 CFR 1024.41(b)(2)(i)(B). This notice is only required if
the servicer receives a loss mitigation application 45 days or more
before a foreclosure sale.
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Additionally, after receiving borrowers' complete loss mitigation
applications, Regulation X generally requires servicers to provide
borrowers with a written notice stating the servicers' determination of
which loss mitigation options, if any, the servicers will offer to the
borrower.\12\ Among other requirements, the written notice must include
the amount of time the borrower has to accept or reject an offer of a
loss mitigation option.\13\ Examiners found that servicers violated
Regulation X because the servicers did not provide timely notices
stating the servicers' determination regarding loss mitigation options.
The servicers were directed to enhance policies and procedures to
ensure timely loss mitigation determinations. One servicer also
violated Regulation X because its written notices did not provide a
deadline for accepting or rejecting loss mitigation offers. In response
to the finding, the servicers updated the offer letter templates to
include a deadline to accept or reject the loss mitigation offer.
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\12\ 12 CFR 1024.41(c)(1). This notice is only required if the
servicer receives a complete loss mitigation application more than
37 days before a foreclosure sale.
\13\ 12 CFR 1024.41(c)(1)(ii).
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Finally, Regulation X requires servicers to maintain policies and
procedures that are reasonably designed to ensure that they can
properly evaluate borrowers who submit applications for all available
loss mitigation options for which they may be eligible.\14\ Examiners
found that servicers violated Regulation X because they failed to
maintain policies and procedures reasonably designed to achieve this
objective. Specifically, the servicers did not follow investor
guidelines for evaluating loss mitigation applications when they
automatically denied certain consumers a payment deferral option rather
than submitting the consumers' applications to the investor for review.
In response to these findings, the servicers updated their policies and
procedures and refunded or waived late charges and corrected negative
credit reporting for impacted consumers.
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\14\ 12 CFR 1024.38(b)(2)(v).
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2.1.9 Live Contact and Early Intervention Violations
Regulation X requires servicers to make good faith efforts to
establish live contact with delinquent borrowers no later than the 36th
day of delinquency.\15\ Examiners found that servicers violated this
provision when they failed to make good faith efforts to establish live
contact with hundreds of delinquent borrowers. The servicers took
corrective action which included providing remediation to harmed
borrowers including refunding or waiving late fees.
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\15\ 12 CFR 1024.39(a).
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Regulation X also requires servicers to provide written early
intervention notices to delinquent borrowers no later than the 45th day
of delinquency and again every 180 days thereafter.\16\ Examiners found
that servicers violated this provision when they failed to send written
early intervention notices to thousands of delinquent borrowers. In
response to these findings, the servicers identified and provided
remediation to affected borrowers who were assessed late fees for
missed payments after the 45th day of delinquency.
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\16\ 12 CFR 1024.39(b)(1).
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2.1.10 Failing To Retain Records Documenting Actions Takes on Mortgage
Loan Accounts
Regulation X requires servicers to retain records documenting
actions taken with respect to a borrower's mortgage loan account until
one year after the date the loan was discharged or servicing of the
loan was transferred to another servicer.\17\ Examiners found that
servicers failed to document certain actions in their servicing
systems, such as establishing live contact with borrowers, in violation
of this provision. In response to these findings, the servicers were
directed to enhance training and monitoring to ensure compliance with
this requirement.
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\17\ 12 CFR 1024.38(c)(1).
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-09713 Filed 5-2-24; 8:45 am]
BILLING CODE 4810-AM-P
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