On April 24, 2020, the Consumer Financial Protection Bureau (CFPB) issued CFPB Bulletin 2020-02 (2020 CFPB Bulletin or Bulletin) to provide residential mortgage servicers additional guidance. Specifically, this was regarding their obligation to have policies and procedures that are reasonably designed to achieve the objectives of the Real Estate Settlement Procedures Act, as implemented by Regulation X, regarding the servicing transfer of mortgage loans. This Bulletin is similar to one issued in 2014 but highlights new examples and underscores the CFPB’s plan to continue its focus on servicing transfers.
The COVID-19 pandemic is having an unprecedented impact on the economy, with many state governments requiring nonessential businesses to remain closed and near-record high unemployment claims. These negative economic factors will contribute to significant increases in mortgage defaults, which in turn will likely create liquidity issues for some mortgage servicers. Liquidity concerns of a federal regulator or a security issuer of a federally backed mortgage loan, as defined by the Coronavirus Aid, Relief and Economic Security Act (i.e., a loan that is purchased or securitized by Fannie Mae or Freddie Mac; or a loan that is guaranteed or insured by the Federal Housing Administration, the Department of Veterans Affairs, or the Department of Agriculture), will likely be the primary trigger for servicing transfers in the near term.
The CFPB recognizes that the COVID-19 pandemic is going to cause an increase in the volume of mortgage servicing transfers. During the presidentially declared national emergency that began March 13, 2020, and up to 120 days after its conclusion, the CFPB intends to consider the challenges that servicers may face, such as operational and time constraints related to servicing transfers. The CFPB will be sensitive to servicers’ good-faith efforts that are intended to execute servicing transfers without negative borrower impact. These considerations and sensitivities will be applied to servicing transfers that are requested or required by a federal regulator, or by a security issuer of a federally backed mortgage loan.
Given the expected increase in servicing transfers, below are some considerations for mortgage servicers.
Regulation X outlines servicing transfer objectives for both transferor and transferee servicers. These objectives were initially implemented when Regulation X became effective on Jan. 10, 2014. Regulation X was last amended on Aug. 4, 2016.
According to Regulation X, a transferor servicer is expected to have policies and procedures that are reasonably designed to ensure the servicer can “timely transfer all information and documents in the possession or control of the servicer relating to a transferred mortgage loan to a transferee servicer in a form and manner that ensures the accuracy of the information and documents transferred and that enables a transferee servicer to comply with the terms of the transferee servicer's obligations to the owner or assignee of the mortgage loan and applicable law.”
A transferee servicer is expected to have policies and procedures that are reasonably designed to ensure the servicer can “identify necessary documents or information that may not have been transferred by a transferor servicer and obtain such documents from the transferor servicer.”
CFPB examinations subsequent to Regulation X’s implementation have regularly identified violations and material weaknesses when examining servicers’ compliance management systems. Servicers often have inadequate policies and procedures around the transfer of loan documents and information to the transferee in an accurate and timely manner. As a result, some servicers have found themselves embroiled in lengthy regulatory investigations and costly litigation, as noted below:
The Bulletin highlights focus on areas that the CFPB may consider as contributing to a mortgage servicer’s policies and procedures being reasonably designed to achieve Regulation X’s servicing transfer requirements, which include:
In addition to the examples above, the Bulletin also provides an example list of common data elements and information that the CFPB will likely use to assess compliance with Regulation X in future supervisory examinations. This list can be found in Appendix A of the Bulletin.
Guidehouse combines both public and commercial sector expertise and can provide clients the full perspective on servicing transfers tailored for the COVID-19 pandemic environment. We have many years of experience supporting mortgage servicing transfers for both boarding and deboarding. Based on our experience, the following areas are usually the most problematic for servicing transfers:
Our experts can help mortgage servicers with the following: