CFPB’s Supervisory Highlights Reveal Struggles Complying with Regulation X and Loss Mitigation (Part 3)

The CFPB published its Supervisory Highlights last week, highlighting examinations across various financial products that were conducted between January and April of this year.  The Report highlights key findings made by the CFPB and provides insight into the current focus of the examiners.  The current edition of Highlights provides insights on consumer reporting, fair debt and student lending, but the centerpiece of the Report are the key findings regarding the mortgage industry.  Today’s post focuses on the mortgage findings, both for loan originators and servicers.  The overriding theme of the Highlights continues to be the need to have appropriate compliance management systems in place.

                Loan Origination

The CFPB indicates that this is the first round of examinations to take into account compliance with the Title XIV rules, which include the ability to repay, loan originator compensation, high-cost mortgages, homeownership counseling and escrows.  The Highlights indicate that supervised entities which originate mortgage loans are struggling with the implementation of the policies and procedures necessary to comply with the new regulations. More generally, the CFPB found entities did not provide adequate training in certain key areas, did not provide for sufficient monitoring and corrective action, and failed to have systems in place for robust compliance audits.  The key highlights:

• Not surprisingly, based upon the recent rash of consent orders, heavy scrutiny was applied to compliance with the Loan Originator Rule.  The CFPB noted that while written policies were in place, there were no written procedures instructing employees how to comply with the written policies.  The CFPB emphasized the need for written procedures that not only ensure compliance with the Loan Originator Rule, but also monitor compliance;
• Some supervised entities struggled with the disclosures required by the Regulation X and did not fully comply with the disclosure requirements by failing to provide the list of housing counseling agencies to consumers and in particular, failing  to provide the websites for each agency;
• Supervised institutions also struggled to comply with the good faith estimate requirements of Regulation X.  Particularly, the CFPB found entities:
  • Failed to timely provide the consumer with the good faith estimate within three business days of receipt of the completed application;
  • Failed to timely provide the consumer with revised good faith estimates within three business days of receiving information of changed circumstances; and
  • Failed to include all fees within the good faith estimate.
• Supervised entities failed to ensure that the HUD-1 settlement statements accurately reflect the actual settlement charges paid by the borrower;

Mortgage Servicing

The CFPB acknowledged that compliance with the CFPB mortgage servicing rules is a high priority.  It should come as no surprise, then, that the report details a number of issues in this regard.  The CFPB again made the general observation that entities needed procedures in place to audit for systemic controls.

• Particularly as to loss mitigation, the CFPB noted:
  • A number of issues with acknowledgement notices sent by servicers.  The Highlights make clear the expectation that servicers’ requests for additional documents should be on point and only request the specific additional documents actually required to complete a loss mitigation application;
  • Entities also need to protect against system failures and weaknesses to insure that loss mitigation acknowledgement notices are timely sent; and
  • Entities need to insure that systems and procedures are in place to insure that loans transferred while in loss mitigation are handled appropriately.

• Particularly as to foreclosure, the CFPB noted the expectation that servicers’ notices of intent to foreclose take into account any pending loss mitigation plans.

• The CFPB also noted that one or more servicer failed to automatically cancel private mortgage insurance as required by the Homeowners Protection Act. 

• Entities also struggled with the periodic statement requirements of Regulation Z. Particularly, the CFPB noted that:
• One or more servicers failed to send periodic statements either because of a sustained system error or because of an erroneous belief that the loans were exempt; and
• One or more servicers inaccurately listed fees and transactions in the transaction history.