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Consumer Financial Protection Bureau puts servicers on notice over technology deficiencies and breakdowns

The government’s consumer watchdog signaled this past week that it was going to crackdown on mortgage servicers that haven’t adequately beefed up their technology to comply with recent federal rules.  

In a recently published bulletin, the Consumer Financial Protection Bureau (CFPB) said its examiners have found violations of the 2014 servicing rules stemming from process breakdowns and deficient technology, especially in how some companies have been handling loan modifications when borrowers run into trouble.

HomeCambridgeThe CFPB said consumers have suffered delays in getting their trial modifications converted into permanent loan modifications. Examiners also found problems when borrowers applied for a loan modification. Sometimes, the CFPB said, servicers failed to acknowledge receipt of the application as required by law "due to a repeated processing platform malfunction of a significant period of time." 

Problems also have cropped up when a loan is transferred from one servicer to another. The companies often didn’t have compatible computer systems, and the new servicer failed to honor a loan modification.

The bureau didn’t name any companies in its report and said some companies have made progress, but indicated that problems with technology are widespread. Mortgage servicing is dominated by the nation’s five biggest banks, but there are several nonbank players. The largest single servicing platform is owned by Black Knight, whose mainframes in Jacksonville, Florida, support roughly half of all residential mortgages, according to the company's webpage.  

In January 2014, new federal servicing rules kicked in that were meant to clean up the industry, which was blamed for worsening a foreclosure wave through sloppy servicing practices after the financial crisis of 2007-09. Aside from preventing abusive practices, the rules also laid out for servicers firm timelines and notification requirements in loan-modification and foreclosure proceedings. 

The CFPB's notice was perceived by the industry as a warning to servicers. 

“It is a shot across the bow,” said Tim Anderson, director of eServices at the digital solutions provider DocMagic. “In other words, get your house in order or we are going to come after you.”

Anderson said the servicing companies have generally not sufficiently upgraded their technology to handle the new rules, assuming that the foreclosure crisis was a temporary problem.  

“They threw a bunch of people at it to handle the backlog, but they didn’t put a lot back in technology,” Anderson said. 


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