The Consumer Financial Protection Bureau ("CFPB") released its
Winter 2015 edition of supervisory highlights for the mortgage industry.
The highlights discuss some concerning trends of violations during the
first quarter of 2015. Since the Dodd-Frank Act passed, the CFPB has stepped
up efforts to ensure fairness and transparency within the lending and
consumer finance industry. Tasked with the oversight of national financial
institutions that hold over $10 billion in assets, the CFPB has the authorization
to levy fines and force corrective actions to those financial institutions
found to be violating lending and servicing regulations. The following
is a summarization of the six most common lending violations and the four
most common servicing violations.
1. Failing to Establish and Maintain Written Policies and Procedures under
the Loan Origination Rule
The Loan Origination Rule is part of the Truth in Lending Act (“TILA”)
and requires that a lender discloses loan originator compensation to the
borrower in order to protect them from being directed into loans with
unfavorable terms. The CFPB determined that lenders failed to establish
written policies and procedures instructing employees on how to comply
with current regulations. Lenders were directed to implement and maintain
written procedures that guide their employees on the importance of maintaining
compliance with TILA.
2. Failing to Comply with Disclosure Requirements Concerning the List of
Homeownership Counseling Organizations
The CFPB found that lending entities failed to comply with the Real Estate
Settlement Procedures Act (“RESPA”) by not adequately providing
the correct website addresses of housing counseling agencies to consumers.
The non-compliance was apparently due to an oversight by lenders, who
then took action to rectify the information on their disclosure forms.
3. Failing to Comply Fully with RESPA’s Requirements for the GFE
RESPA requires a lender to deliver a Good Faith Estimate (“GFE”)
to a consumer within three business days of receipt of a finished loan
application. Examiners found that lenders had failed to comply with this
rule by not providing the GFE within the specified time frame, and by
failing to include all applicable fees incurred by the borrower.
4. Failure to Fully Comply with RESPA’s Requirements for Completion
of the HUD
RESPA requires the HUD settlement statement to accurately reflect the fees
and charges being paid by the borrower at the close of the loan. Examiners
found violations and ordered those customers affected by incorrect HUD
settlement charges to be refunded the appropriate amounts.
5. Deceptive Practices from Broad Waiver in Home Equity Loan Installment
Examiners found that lenders were misleading consumers by demanding they
sign a waiver of individual rights, whereas the CFPB deemed such a waiver
as unenforceable. The CFPB concluded that a consumer may be misled by
the waiver, believing they are waiving their statutory rights to the notification
and delivery of demands regarding the delivery, acceptance, performance,
default, or enforcement of their notes, and therefore, would be less likely
to assert said rights. Lenders were directed to cease requiring consumers
to sign such broad waivers, and replace consumer documents with a more
6. Failure to Provide Adverse Action Notices Promptly
Under the Equal Credit Opportunity Act (“ECOA”), lenders are
required to notify the applicant of adverse measures taken within 30 days
after receiving a completed application. Examiners found that lenders
had failed to provide notices promptly, in violation of the requirements of ECOA.
7. Failure to Provide Adequate Notices to Loss Mitigation Applications
RESPA requires that borrowers who are seeking payment assistance through
a loss mitigation application be notified in writing by the servicer within
five days of receiving the application. The notice must indicate if the
application is complete or incomplete, and if incomplete, list the documentation
required to complete the application process. Examiners found that at
least one servicer issued out loss mitigation acknowledgments that required
excessive documents, in violation of RESPA.
8. Sending Incorrect Intent to Foreclose Notices
The CFPB found that servicers sent the incorrect intent to foreclose notices
to borrowers who were approved for a loan modification before their first
trial payment was received. They also concluded that the servicer had
neglected to verify if the borrower had a pending trial modification plan
before sending out foreclosure notices.
9. Failure to Send Account Statements
Under TILA, servicing agents are required to send out statements each billing
cycle that displays the account’s transaction history and documents
activity that would lead to a credit or debit, and the amounts due. Examiners
found that some servicers were neglecting to send out the documentation
that conformed to TILA.
10. Failure to Comply with the Homeowners Protection Act
Examiners found that servicers were not in compliance with requirements
of the Homeowners Protection Act (“HPA”), which requires the
automatic termination of private mortgage insurance (“PMI”)
payments when the mortgage balance falls below 78% of its original value,
or if the borrower is current on the termination date.
The CFPB issues Supervisory Highlights on a quarterly basis as it works
to resolve violations using non-public supervisory actions. When these
examinations reveal violations, the CFPB directs lenders and supervisors
to implement immediate and appropriate corrective measures. These actions
include refunds and compensation to consumers, as the agency deems appropriate.
To date, agency findings and resolutions have resulted in remediation
of approximately $19.4 million back to consumers.