As is typical for the Consumer Financial Protection Bureau (CFPB), they’re constantly working on multiple issues at the same time. Last week the CFPB’s director published a blog post discussion some of the Bureau’s thoughts about the current state of mortgage servicing. As noted in the post, buying a home is one of the largest and most important financial decisions a family makes. Borrowers who go through the home-buying process will often encounter both lenders and servicers during the life of the loan.
Mortgage servicers are often separate companies which manage mortgage loan accounts and processing loan payments. By the nature of what they do, mortgage servicers function in a critical role in helping and guiding homeowners with repayment. Borrowers normally don’t choose who services their loan, servicers are chosen by the lender that owns the mortgage. Sometimes the original lender will transfer the ownership and servicing of a mortgage loan and other times the original lender will retain ownership of the loan and only transfer the servicing of the loan.
The 2008 financial crisis and subsequent developments were instrumental in Congress creating the CFPB. One of the driving forces behind the creation of the CFPB was to have the new agency implement new rules to make the mortgage market function better. These mortgage servicing rules first took effect in 2014. The COVID-19 pandemic gave the CFPB an opportunity to see how well the existing mortgage servicing rules were working when unemployment soared. As a result of evaluating the current rules’ effectiveness, the CFPB decided that the rules could be revised to reduce unnecessary complexity.
Last fall, the CFPB asked for input on ways to reduce risks for borrowers who experience disruptions in their ability to make mortgage payments, including input on the mortgage forbearance options available to borrowers. In their Request for Information Regarding Mortgage Refinances and Forbearances, the Bureau sought input on the features of COVID-related forbearance programs and ways to automate and streamline long-term loss mitigation assistance.
Many comments were received, and commenters noted that borrowers seeking help on their mortgages often faced an uphill climb with seemingly endless amounts of paperwork, which ultimately hurts both homeowners and mortgage servicers. This process also commonly included the borrower incurring fees and negative credit reporting while waiting for a resolution to their situation. The temporary pandemic-related changes to the servicing rules were noted to have helped alleviate these problems and accommodate borrowers more quickly.
If recent history is our guide, banks should expect the CFPB to come up with an action plan regarding mortgage servicing rules, including potential changes to the loss mitigation procedures. We’ll have to wait until a proposed rule is published to know for certain what changes might happen, but for starters, the temporary COVID-era changes seem like a step in the right direction in the eyes of the CFPB. In the meantime, we’re always here to help with any mortgage servicing-related questions you might have.