In the CFPB’s recent release of its Compliance Bulletin and Policy Guidance: Mortgage Servicing Transfer, the agency has targeted the transfer of residential mortgage servicing because it often has an adverse impact on consumers. In fact, servicers that are engaged in significant servicing transfers will, in cases deemed appropriate by the CFPB, be required to prepare and submit informational plans that describe how they will be managing the related risks to consumers. It should be noted that the guidance applies both to transfers of servicing rights as well as transfers of servicing responsibilities through subservicing or whole loan servicing arrangements.
This new guidance replaces CFPB Bulletin 2013-01 (Mortgage Servicing Transfers) that was released in February 2013 and is divided into four sections: “General Transfer-Related Policies and Procedures,” “Applicability of the New Servicing Rules to Transfers,” “Protections under Federal Consumer Financial Law,” and “Plans for Handling Servicing Transfers.”
Section A — General Transfer-Related Policies and Procedures
Section A addresses the concern that consumers are at heightened risk if documents and information are not accurately transferred. This section provides examples of the factors that examiners may consider in evaluating whether a servicer has satisfied the requirement to maintain policies and procedures that are reasonably designed to facilitate the transfer of information during the mortgage servicing transfer process.
Specifically, examiners may look for the following:
- Whether contracts require the transferor to provide all necessary documents and information at loan boarding;
- Whether tailored transfer instructions are provided for each deal and timely meetings are conducted to discuss and clarify key issues with counterparties;
- Whether specifically tailored testing protocols are used to evaluate the compatibility of the transferred data;
- Whether there is a quality control process conducted after the transfer of the preliminary data to validate that the data received matches the data submitted;
- Whether there is a process to recognize when a transfer cannot be implemented successfully in a single bath and whether there are alternate protocols, such as splitting the transfer into smaller batches;
- Whether there is a post-transfer process to validate data to ensure it was transferred correctly and that addresses any necessary corrections to inbound loans;
- Whether incoming information is effectively organized and labeled; and
- Whether there are regularly scheduled calls with transferor servicers to identify any loan level issues and to research and resolve those issues within a few days.
Based on consumer feedback, the CFPB is particularly concerned about the transfer of servicing rights for loans with pending loss mitigation applications, as well as approved loss mitigation plans (including trial loss mitigation plans). Examiners will expect the transferor to provide a detailed list of loans with pending and approved loss mitigation plans and that the transferee will ensure that they are in receipt of copies of all loss mitigation documents. Transferees will be expected to have policies and procedures that address how they will review the transferred documents and obtain any missing documents or information from the transferor before attempting to obtain the information or documents from the borrower. Lastly, the transferor will be expected to transfer information in its possession prior to the boarding of the loans.
Section B — Applicability of Other Parts of the New Servicing Rule to Transfers
Servicers must meet certain requirements for responding to notices of errors and written information requests and the guidance provides expectations for how these requests should be handled if they are in process at the time the servicing is transferred. The guidance also addresses how force-placed insurance should be handled if it is in process at the time of the transfer.
Servicers are required to establish live contact or make a good faith effort to establish live contact with a borrower before he or she becomes 36 or more days delinquent. Again, it is expected that transferee servicer will begin or continue these good faith efforts, regardless of whether the delinquency began while the loan was being serviced by the transferor servicer. In addition, the transferor is expected to transfer a complete record of the borrower’s payment history, so that the transferee can appropriately assist a delinquent borrower. Particular attention will be paid to a servicer’s handling of loss mitigation during the transfer process to ensure that evaluations do not take longer than 30 days from the date the transferor received the borrower’s complete application.
Section C — Protections Under Federal Consumer Financial Law
The Guidance reminds servicers of their requirements under the Fair Credit Reporting Act, the Fair Debt Collection Act, and UDAAP. Servicers will be expected to maintain a robust Compliance Management System (CMS) to ensure, for example, that violations of federal consumer financial law do not occur during a transfer and that mechanisms are in place to promptly identify and remediate any violations.
Section D — Plans for Handling Servicing Transfers
Servicers engaged in significant servicing transfers may be required by the CFPB to prepare and submit written plans detailing how they will manage the associated consumer risks. These plans should include:
- The number of loans and total servicing volume involved in the transfer;
- The name of the servicing platform(s) on which the transferor stored all relevant account information for transferred loans;
- A detailed description of how the servicer will ensure compliance with applicable servicing rules;
- A detailed description of the transaction and system testing to be conducted to ensure the accurate transfer of information;
- A description of how the transferee will identify and correct any errors;
- A description of the training plan and actual training materials; and
- A customer-service plan specific to transferred loans that provides for responding to loss mitigation requests or inquiries and for identifying whether a loan is subject to a pending loss mitigation resolution or application.
Servicers will not need approval from the CFPB before moving forward with servicing transfers, unless specifically required to do so (e.g. by a consent order).
The bulletin was effective when issued on October 23, 2014.