CFPB Supervisory Highlights: Servicing Fees & Default Management
Written by: Heather Papows, Senior Loan Servicing & Secondary Market Consultant
This week, the CFPB released a new Supervisory Highlights publication focusing primarily on mortgage servicing and the actions taken in response to recent (April - December 2023) exam findings on “junk fees”.
The report outlined the results of the examinations, noting that UDAAP and regulatory violations occurred by overcharging fees, failing to “adequately describe” the fees in monthly billing statements, violating loss mitigation regulations, and processing un-timely escrow disbursements.
The details of the findings concluded that servicers:
Charged late fees that exceeded the amount permitted per the loan agreement
Assessed late charges while borrowers were under loss mitigation agreements which prevented late fees
Assessed fees labeled as “service fee” on the periodic statement, with no explanation of what the fee was
Made escrow disbursements that did not reach the payees, and were re-sent after due dates, incurring late fees and penalties that were not paid by the institution until customers complained
Failed to maintain policies and procedures that allow the servicer to properly evaluate loss mitigation options
Inaccurately sent delinquency notices and loss mitigation applications when customers were not in fact past-due
Failed to make live contact attempts in a timely manner to delinquent borrowers
Failed to send early intervention notices by the 45th day of delinquency and again every 180 days thereafter
Issued loss mitigation notices that insinuated a borrower’s approval of workout options before actually evaluating, then ultimately denying the option
Provided a notice of receipt for a loss mitigation application that did not specify whether the application was complete or incomplete.
Provided a loss mitigation offers notice with no specified timeline to accept or reject the offer
Failed to maintain proper records of a loan account, including all live contact efforts, for one year after discharge or transfer of servicing.[i]
These findings clearly demonstrate that violations, even if unintentional, will result in remediation requirements that cost both time and money. A lot of focus is on fees and actions specifically related to how servicers handle default management. The CFPB’s efforts to address these servicing junk fees go hand in hand with other recent industry news of CFPB’s efforts to investigate fee structures related to closing costs as well as actions made towards the reduction of credit card late fees, overdraft fees, and other consumer-facing fees.
SCA can provide fully customizable solutions that help you evaluate your exposure risk to these types of servicing examination focuses before you’re on the hook in an audit. Contact our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617 to schedule a no-obligation consultation today!
