The federal watchdog agency tasked with protecting consumers from unfair or predatory financial practices by many types of financial institutions recently issued new guidance for some companies related to loan transfer deals.
The Consumer Financial Protection Bureau’s latest bit of guidance addressed the legal obligations mortgage lenders have with regard to protecting consumers as they transfer these home loans to servicers, according to a report from the agency. During this process, it’s possible for many things to go awry, and some of those mishaps can lead to significant problems for consumers.
These can include lost paperwork and loss mitigation plans, and can even lead to consumers becoming entangled in issues that will prevent them from avoiding foreclosures, the report said. These issues have come into stark focus for the agency largely because more companies are now shifting loans to servicers in larger volumes.
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“Consumers should not be collateral damage in the mortgage servicing transfer process,” said CFPB director Richard Cordray. “This guidance directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of such transfers, and makes clear that we will be monitoring them for compliance.”
Often, mistakes in the servicing transfer process can lead to issues such as servicers not knowing whether a borrower made a payment on their mortgage on time, and as such that can lead to diminished credit scores among other, more serious complications, the report said. Often, these can also be difficult for borrowers to clear up quickly and easily.
As such, the CFPB is now looking into how servicers are prepared for any sort of transfer of servicing rights, how those new third parties are able to handle consumer information once they receive it from the loan originator, as well as what policies these companies have in place to prevent borrowers from being harmed by any missteps made in the transfer, the report said. These were all spelled out in new CFPB regulations that went into effect last month, and were designed to better protect consumers from paying for mistakes financial institutions may make in dealing with their accounts.
The CFPB has a wide purview over most bank and nonbank financial institutions nationwide, and is now working to put greater controls into place as a means of providing more protections and clarity for all Americans in a number of ways.