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CFPB Report Emphasizes Focus on Compliance, Mortgage Servicing and Fair Lending

on Wednesday, 30 October 2013 in Banking Update

The CFPB’s latest “Supervisory Highlights” Report provides some useful information relating to the regulator’s recent supervisory actions and highlights areas of focus related to compliance management systems, mortgage servicing and fair lending.


Compliance Management Systems

The CFPB has long taken the position that compliance management is vital to prevention of violations of Federal consumer financial laws. The CFPB expects every entity it supervises to have an effective compliance management system adapted to its business strategy and operations that:


  • Establishes its compliance responsibilities;

  • Communicates those responsibilities to employees;

  • Ensures that responsibilities for meeting legal requirements and internal policies are incorporated into business processes;

  • Reviews operations to ensure responsibilities are carried out and legal requirements are met;

  • Takes corrective action; and

  • Updates tools, systems, and materials, as necessary.


While the CFPB has not issued specific CMS requirements, the report indicates that it tests four components it believes are necessary for an effective CMS:

  • Board of directors and management oversight;

  • A compliance program;

  • A consumer complaint management program; and

  • An independent compliance audit.


The Report found that many supervised institutions lacked one or more of these components, which resulted in violations of Federal consumer financial laws. The report specifically identifies the lack of periodic monitoring and compliance audits as a significant area of concern due to the potential for compliance issues to go undetected, potentially resulting in patterns of regulatory violations.


Mortgage Servicing

The CFPB’s Report also highlights mortgage servicing issues related to loss mitigation, servicing transfers and payment processing.


Service Transfers: The CFPB’s examiners also found issues pertaining to servicing transfers, such as:

  • Inadequate controls and procedures in connection with key documents like loan modification applications, trial modification agreements, and other loss mitigation agreements;

  • Noncompliance with consumer servicing transfer disclosure requirements under Real Estate Settlement Procedures Act (RESPA);

  • Failure to review any individual documents that the prior servicer had transferred; and

  • Failure to properly process loan files due to poor loan-file organization and labeling.


Loss Mitigation: In connection with loss mitigation, the Report indicated that the CFPB’s examiners found numerous issues including:

  • Inconsistent borrower solicitation and communication;

  • Inconsistent loss mitigation underwriting;

  • Inconsistent waivers of certain fees or interest charges;

  • Long application review periods;

  • Missing denial notices;

  • Incomplete and disorganized servicing files;

  • Incomplete written policies and procedures; and

  • Lack of quality assurance on underwriting decisions.


Payment Processing: The CFPB’s Report also addressed payment processing issues, including:

  • Violations of the Homeowners Protection Act due to excessive delays in processing borrower requests for PMI cancellation;

  • Improper escrow payments for taxes and insurance;

  • Incomplete documentation for default-related fees; and

  • Improper charges to borrowers for default-related fees.


Fair Lending

Finally, the CFPB’s examiners reported recurring problems under fair lending laws, such as:

  • Lack of adequate monitoring and internal controls to detect and prevent fair-lending violations;

  • Failure to comply with ECOA adverse action notification requirements; and

  • Insufficient CMS processes and training of personnel to assure timely notification of consumer in accordance with Regulation B requirements.


Jonathan J. Wegner

1700 Farnam Street | Suite 1500 | Omaha, NE 68102 | 402.344.0500