Alert February 19, 2013

CFPB Issues Guidance on Requirements for Transfer of Servicing Rights

The CFPB issued a bulletin addressing mortgage servicing transfers in response to the number of large servicing transfers that have taken place recently. The bulletin provides guidance to residential mortgage servicers and subservicers, and, according to Director Cordray, "directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of [servicing] transfers and makes clear that we will be monitoring them for compliance." Based on consumer complaints, the CFPB is primarily concerned that servicing transfers result in service interruptions, including instances where loan modifications are not honored because the transferor did not provide sufficient documentation or because the transferee failed to take adequate steps to identify loans subject to a trial loan modification.

The bulletin advises that the CFPB will expect servicers engaged in large servicing transfers to submit plans regarding how the servicers plan to manage related risks to consumers, and also warns that CFPB examiners will be closely reviewing servicing transfers for compliance with federal law, including, the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and their implementing regulations, as well as unfair, deceptive or abusive acts and practices. The bulletin also notes that CFPB examiners will focus on how transferors prepare for servicing transfers, how transferees handle transferred files, and the policies and procedures implemented with respect to loans with loss mitigation in process at the time of transfer. With respect to the latter, examiner focus will include a review of the policies and procedures in place to ensure, for example, that: the transferee has information regarding the loans that are in the loss mitigation process; payments are properly being applied in accordance with modification agreements; and the borrower is informed of the status of a loss mitigation application that is pending at the time of transfer.

The FHFA and the HUD both issued statements in support if the bulletin.