CFPB Notes Student Loan and Mortgage Servicing Deficiencies

On April 26, 2017 the Consumer Financial Protection Bureau (CFPB) released its Spring 2017 Supervisory Highlights report which revealed that some student loan and mortgage servicers are violating the law by failing to provide struggling borrowers with legal protections. The report said CFPB examiners found that some student loan servicers failed to refund charges imposed on borrowers who had been wrongly denied the right to defer payments while enrolled in school. The repost also found that some mortgage servicers did not deliver the required foreclosure protections to borrowers seeking to save their homes, mishandled escrow accounts, and sent incomplete bills.

More specifically, the report said examiners had found that student loan servicers had:

  • Routinely acted on flawed information: Some student loan servicers routinely acted on incorrect information about whether the borrower was enrolled in school.
  • Failed to reverse charges wrongly imposed on borrowers in school: Because of data errors, some student loan servicers routinely failed to reverse certain charges even after they knew they had wrongly ended a deferment. These charges included improper late fees and capitalization of unpaid interest, which occurs when interest that accumulated on a student loan is added to the principal balance.

Regarding mortgage loans, CFPB examiners found servicers:

  • Kept borrowers in the dark on foreclosure alternatives: Servicers failed to identify the additional documents and information borrowers needed to submit to complete a loss mitigation application to avoid foreclosure. They then denied the applications for not including those documents.
  • Prematurely launched the foreclosure process: Servicers failed to properly classify applications as complete after receiving the information, and failed to give required foreclosure protections to those consumers.
  • Mishandled escrow accounts: Servicers used funds from escrow accounts to pay insurance premiums on unrelated loans.
  • Issued incomplete periodic statements: Servicers used vague language when describing certain costs. These insufficient descriptions failed to comply with applicable rules.

This Supervisory Highlights report also looks at how CFPB examiners assess compliance with the Ability-to-Repay rule, including requirements on how a lender verifies a consumer’s ability to repay a mortgage loan. The report also advised that CFPB examiners alerted one or more companies to spikes in complaint volume, prompting the companies to develop remedies.

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