Highlighting Mortgage Servicing Issues

By Compliance Alliance

The CFPB releases its supervisory highlights every quarter, calling attention to frequent violations that they have taken enforcement actions against, and they just released the Winter 2020 edition on February 14. These supervisory highlights are incredibly valuable because they give the industry a rare glimpse into which rules the regulator is currently putting a microscope to, and give banks an opportunity to hyper-focus their compliance efforts on those particular areas so they can be ready for the next examination in those areas.

This particular issue covered a myriad of topics, but mortgage servicing issues were of particular consequence. This is of no surprise to those of us on the hotline, as that area is a consistent hotbed for questions. Although these violations were in relation to Payday Lenders, the issues are still important to note for other bankers.

When it comes to origination, lenders frequently had inaccurate APRs, incorrect finance charges, and failed to retain records for the required amount of time. It is important to remember that the APR must generally be within 1/8th of a percent or .125% of the Reg Z calculation to be considered accurate. Most lenders had issues with disclosing an APR because they had employees manually calculate the APR when their software system was unavailable.

Instead of having employees manually calculate the APR, the bank may consider working with the vendor to be able to get the system running again before printing any documents. If the bank absolutely cannot wait, the bank may consider verifying any calculations with APRWIN from the OCC. The bank would also want to verify that the finance charge has been calculated correctly and that all required fees have been included. The bank may find our Fees and Charges Matrix helpful. The bank would also want to be sure to keep all Reg Z disclosures and supporting documents for at least 2 years after disclosures under Reg Z. You can find that in our Record Retention Cheat Sheet.

Another issue that many lenders were cited for was failing to give the principal reasons for denial on adverse action notices. Regulation B and the FCRA require that lenders give consumers the principal reason or reasons that their application for an extension of credit was denied. The reason cannot be vague, it must be specific to why they were not extended credit.

The CFPB cited lenders for not providing the specific principal reasons or for providing incorrect reasons. The supervisory highlight did mention that many of these were due to software system failures. It is important to note that software system failures are not a defense for providing incorrect adverse action notices or not providing them at all. Banks should take care to spot check notices to be sure that they are correct and that notices were sent as required.

Two important UDAAP issues that were noted in the supervisory highlight were related to applying for consumer payments incorrectly and charging fees that were not previously disclosed. Banks should be sure that they are applying for payments from consumers timely to be sure that consumers are not being charged more in interest due to the bank’s delay in applying for payments. Banks should also be sure to not charge fees that were not previously disclosed in the loan documents.

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