Home Mortgage Consumer Protection

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§1. The periodic statement proposal in general

As with the notice of servicing transfer, both consumer and industry commenters generally supported the periodic statement proposal. One commenter who self-identified as working for a mortgage originator with customers from all over the country and/or other countries argued that providing information can be part of the duty to “protect the contract” since “the better informed your client is (whatever… payments, fees, penalties, etc), the better changes of you (a business) getting paid.” A consumer commenter wrote: “The Periodic Statement is gret and you can see that a lot of thought went into this process.” (This commenter did have suggestions for additional content, described below.) No commenter argued against the policy of providing information to borrowers, although there was spirited debate (reported below) about whether CFPB should permit different rules for coupon books and small servicers.

Some commenters addressed the importance of a standardized form. One (who self-identified as a regulatory compliance officer for a company whose customers are mostly from a single state) noted that on his/her own mortgage, “[m]y current lender puts the information on the statement but it is so disorganized that I can’t tell what went to interest, escrow, PMI, etc.” (This commenter addressed the cost issue and is quoted further below).

There was discussion about the level of detail that should be provided:

1. Escrow account information. Commenters disagreed about whether more details should be provided. One (self-identified as having worked for the mortgage servicing industry in the past) insisted that the statement should detail “what insurance information is on file for the property, the expiration date, and the premium[, …] a tax breakdown, PMI [private mortgage insurance], and another fees, along with an escrow.” However, another (self-identified as working for a servicer whose customers are mostly from the local community) noted that a complete escrow breakdown is provided annually and questioned whether consumers were helped by having this information on a monthly basis. Pointing out that [w]hen there is an escrow for multiple types of payments – insurance, taxes, etc. – [current] regulation requires “aggregate accounting that saves consumers money by using a cash flow method,” s/he thought it “might be more informative to show escrow monies received and paid out in the period.”
2. Transaction activity. One commenter (a consumer who had personal or family experience with a mortgage being foreclosed) insisted that the statement should itemize payments in a form that allows the borrower to verify the validity of the charge. S/he suggested the format now used on credit card statements, which includes a billing reference and contact information for each charge. This commenter’s concern arises from personal experience: “After my house was sold [identified as a short sale in another comment] I requested a Detailed Transaction…[and learned that] my account was left open for 6 months after the closing and the bank continued to bill my account for “Property Inspection Assessed” and “Property Inspection Paid.” After the commenter challenged these continued charges for drive-by inspections, s/he eventually received a check for the disputed amount. Just as with credit card transactions, the borrower should get enough information to double check the amount and legitimacy of the service s/he is being charged for, and the vendor should be required to cooperate in verifying the charge.

The concern about getting itemized details (especially of fees and charges for third-party services) was a recurrent theme. It also appeared in the discussion of, e.g., Asking for, and Getting, Information.

§2. When, where and how the statement should be delivered

Commenters who addressed the issue of timing strongly favored monthly statements.

As for how far before the payment due date the statement should be sent, one industry commenter agreed with the importance of providing up-to-date information to the borrower before the next payment, but pointed out that crediting an account is tough “when payments are inconsistent.” S/he concluded that there is “no one answer that conforms to all needs….[W]hat is most important is creating an incentive that encourages most people to act.”

On the issue of joint borrowers, a commenter self-identified as having had personal or family experience with foreclosure and a household income of less than $100,000/yr. agreed that a single statement to joint borrowers was generally fine. “However, if either of them changes the address to a p.o. box, or one separate from the home/property, there ought to be a provision that one monthly statement goes to the residence, unless both parties have a new separate address. Also, even if one person is only a quit claim party, or has signed as the dower, they are just as entitled to some sort of statement if something changes. It’s really important.”

Two commenters affiliated with a company whose customers come from all over the country and/or other countries and one commenter affiliated with an advocacy organization emphasized the value of an option to receive the periodic statement in electronic format – but also emphasized that this should happen only if the borrower requests. Other commenters, in the context of discussing coupon books, made the point that not all borrowers are comfortable with technology.

§3. The coupon book exception

There was a spirited discussion around this possible exception. Generally, commenters who had experienced problems with servicers distrusted coupon books and opposed an exception, while some industry commenters had experiences with borrowers who liked coupon books.

One consumer commenter advocated an outright ban on coupon books based on the following experience:

“For 30 months I used a coupon book to pay my mortgage with BoA. Consequently, I could not see how my payments were allocated and how the principal was affected. My new servicer, by contrast, sends a monthly statement that details payment allocation and principal balance as of previous statement. To compare allocations between old & new servicer, I requested a payment history (10 months after the loan transferred) from the old servicer. Lo and behold, I discovered that BoA, did not account for $3700+ of my payment amounts over the 30-month period. Since February 2012 I have been trying to get an explanation. All I have gotten to date from bank representatives is: ‘Forget about the printed record; trust us, payments were allocated correctly.’ Prior to my requesting a payment history, I made payments religiously, in good faith, believing that the lender was so. Now I think differently because almost $4000 of the payments I made is unaccounted for and I do not know how to hold the institution accountable.”

(This commenter has filed a complaint with CFPB but still has no satisfaction.) Another consumer (whose experience is described below in the section on Bankruptcy) agreed about the risks of coupon books, arguing that they “are an outdated tool for the mortgage servicing industry” and that it is important for consumers “to see real numbers every month.”

However, a commenter who is a regulatory compliance officer for a company whose customers are mostly from the local community, argued that some borrowers “like having a physical book” and noted that not everyone is tech savvy. Another commenter (mortgage originator whose company’s customers come from across the country and/or other countries) agreed that although a coupon book is “an old method,” it “works” for some borrowers and their needs should be addressed. S/he suggested that coupon book customers should receive quarterly statements, arguing that this should not be a burden because companies produce quarterly reports already.

In response to observations that some borrowers prefer coupon books, one of the consumer commenters proposed that CFPB should leave the choice be up to the consumer, not the servicer: Rather than allowing servicers to use coupon books and requiring consumers to request dynamic information, periodic statements should be required but a borrower could request a coupon book.

§4. Cost and the small servicer exception

One commenter (federal credit union with customers mostly from local community) said that all the information on the model form is already provided to borrowers by his/her company. The concern is about new formatting requirements: “For most small to mid-size lenders the actual statements are outsourced to a third party due to the cost of creating something in house. Therefore the ability to change the format of a statement is not only limited but very expensive. In a time of ever shrinking margins (Yes, even a credit union needs to earn money) this is a cost that just cannot be easily absorbed.” The moderator responding by asking whether format standardizing “could lower costs over time since the third parties who handle statements would use essentially the same form for all lenders?” The commenter responded: “Having spent so long dealing with vendors I do not anticipate a cost savings. If anything, I can see a ‘compliance surcharge’ being added.”

A very important element of the proposal for this commenter was that the new regulations clearly state that using the model form would be a safe harbor against litigation: “[S]ome other regs specifically state if a FI [financial institution] uses that format they are protected from liability. The CFPB should do the same.”

Another commenter (a regulatory compliance officer for a servicer whose customers come primarily from a single state) shared this concern about “how much it costs to contract with a central processor.” This commenter reacted favorably to the idea of a standardized form based on experience with the mortgage statement s/he received personally (see above), but at the same time warned: “This would be another software change that would require more of an expense to financial institutions. The cost of these changes has to be made up in income, which would ultimately come as a charge to the consumer.” S/he concluded: “A small institution with 1-30 employees doesn’t have the resources available to make large systems changes.”

Commenters affiliated with larger servicers dismissed cost concerns. One argued: “If the current servicers can’t handle the financial burden, then maybe they need to sell their servicing portfolios to companies who ARE equipped to handle it. There are plenty of companies who can step up.” This commenter also believed the cost implications of reformatting were overstated: the system change necessary to create and send out a monthly periodic statement consisted of templates that could be produced cheaply by nearly any office program, such as Microsoft Office or the freeware OpenOffice suit. A commenter who is a member of an advocacy group concurred that small businesses have ample access to “inexpensive software programs.”

Commenters also disagreed about the risks of exempting small servicers. In response to one commenter’s question “Why would we allow someone not to tell me how much money I owe just because they’re a smaller company?” the commenter who is a regulatory compliance officer for a company whose clients are primarily from the same state wrote: “I don’t know if you have ever had an account with a smaller financial institution that knows your name when you walk in the door. … My point is that in a small institution you will be able to speak with a person, either on the phone or face to face. They will always be reachable and in most cases you will be able to talk directly to the person who originated your loan. You would not get transferred 3 times and given the run-around that a large institution tends to do. … Small banks and credit unions were not the dishonest ones who tried to pull the wool over consumers’ eyes in the first place.” S/he warned: “Requirements like these can regulate smaller banks and credit unions right out of business. Then your only option would be to use a Wells Fargo-type bank for your mortgage loan. Small, rural institutions know their customer base and always make themselves available.”

Other commenters assessed the risk differently. As with the coupon book issue, consumers who have had bad experiences with servicers opposed the exemption. One expressed concern that “[u]ltimately, entities for which the exception was not intended [will] find a way to exploit it.” Another argued that “since there is no fiduciary duty between the borrower and the servicer, the quality of service to the borrower is ‘voluntary’ at best. … [U]nless a fiduciary duty is imposed there will always be bad behavior … to the detriment of the borrower. Small servicers may (or may not) have a better relationship with the borrowers, but it is not by obligation.”

One commenter (self-identified as affiliated with an advocacy group), who also opposed a blanket exemption, proposed that small servicers “should be allowed to solicit their clients for waivers or alternatives to save money.”

Two commenters affiliated with large servicers emphasized the importance of equal treatment of all servicers. One of these, plus a third whose company’s customers come from all over the country and/or from foreign countries, rejected the idea that size is a good proxy for quality of service.

Unlike the others, this third commenter was more sympathetic to “the financial difficulties small servicers may face.” However, in his/her view, “there are options, e.g., subservicing, which can lower cost, improve service and comply with the proposed regulations.” This commenter explained the experience of his/her company:

“We work with financial institutions that service from 10 loans to 10,000 and the largest give as good and sometimes better service than the smallest. Most certainly the largest generally have more products to offer. I believe that most sophisticated financial institutions understand that the total potential relationship a borrower can bring is substantially greater than the value of the servicing strip. These relationships often develop and evolve over a period of time. If the financial institution does not meet the borrower’s service level expectations the borrower is more likely to go somewhere else for the other relationships including their next mortgage. Retaining mortgage customers is a critical component of managing the relationship.

“Depending on the assumptions as to size of loan, frequency of refinancing or purchasing, future economic position of the borrower, etc. we believe the value of the relationship today is worth 4-5x the value of the servicing strip. Earning this value is a very strong motivator that should result in great service. Not everyone believes in the value of the relationship, but I do not think belief is highly correlated with size. I am with a company that services mortgage loans. We have never sold servicing. One reason is simply that the value offered is generally around 20% of the value of the relationship. Another even more important reason is that we believe that you cannot both focus on the value of relationships and sell servicing. Buying and selling are transactions. Relationships are long term investments. None of the institutions we work with have ever sold servicing.”

Expressing the belief that “What the CFPB does will be very important to borrowers and service providers,” this commenter argued for a more restrictive version of the exemption: “Has the institution ever sold servicing? If it has it cannot qualify for exemption regardless of its size. I know of many small institutions that sell servicing. I have never seen a seller of servicing large or small that had a quality of service provided by a purchaser of the servicing as a requirement for sale. It has almost always been determined by the amount the purchaser would pay.”

Finally, one commenter (a banker whose clients are primarily from the local community) argued that the 1,000 loan cutoff is too low. “We are a SMALL community bank. Assets of about $225 million. [But] we service more than 1,000 loans” and so would not qualify as a small servicer. S/he did not suggest a specific alternative standard.

§5. Intersection with bankruptcy rules

“My partner developed cancer without medical insurance. This catastrophic event eventually led me into bankruptcy. My partner died 3 weeks before I received the Chapter 7 discharge. Three weeks AFTER the discharge, I signed permanent HAMP modification documents that lowered the payment on my house. Even though it is well over $100,000 underwater, it is still my home and I want to keep it. My servicer honored the permanent agreement and I paid my mortgage every month for over a year with no issues.

“My servicer provided online access as well as monthly statements. The monthly statements have a disclaimer at the bottom that read: “Aurora Bank is a debt collector. Aurora Bank is attempting to collect a debt and any information obtained will be used for that purpose. However, if you are in bankruptcy or received a bankruptcy discharge of the debt, this communication is not an attempt to collect the debt against you personally, but is notice of a possible enforcement of the lien against the collateral property.” This statement protects the servicer against any automatic stay violations, it’s standard throughout the industry. I was lucky to receive a HAMP mod and was one of the success stories about HAMP.

“But suddenly Aurora closed, and the servicing rights went to a non-bank company [identified in another comment as Nationstar]. This is after over a year of success. The new servicer [has refused to provide statements, saying]: ‘It is our policy to deny online access to accounts and will not provide mortgage statements to anyone who has had a bankruptcy and did not reaffirm the loan … Why did I not reaffirm? No bankruptcy judge would reaffirm a mortgage that was $100,000 underwater at the time. The judges go out of their way to not approve reaffirmation agreements because it is not in the best interest of the debtor.” In response to the moderator’s question about whether the new servicer was relying on the bankruptcy law itself, on a company policy, or on some combination, the commenter quoted the servicer’s written response to his/her complaint: ‘Please be advised that our records indicate that your account has gone through a bankruptcy that has been discharged. Please know that because of the discharge bankruptcy we will no longer send billing statements unless we receive an affirmation agreement. If you have any questions please contact our bankruptcy department.’ ” The commenter interprets this as “us[ing] the statemens as leverage to obtain a reaffirmation.” The “complete and utter blackout of information on [the] loan” has prevented him/her from getting statements, web access to account information, and even information on interest paid for income tax purposes.

S/he urges CFPB to modify its proposal to address this problem: “[A] simple disclaimer is all the servicer needs for bankruptcy cases, and if the homeowner is asking, how could it possibly be a violation? The rules you propose still do not protect bankruptcy cases because the servicer is not required to include a disclaimer so the bankrupt homeowner can keep getting statements. Same with online accounts.” S/he suggests that the final rule require that “the servicer shall make a good faith effort to help homeowners with bankruptcies stay in their homes by offering statements with the standard disclosure phrase. By accepting the terms of the online agreement and the monthly statement, the homeowner would agree that it is not a violation of the automatic stay.” “This is a simply fix for the CFPB without stepping on any BK [bankruptcy] rules.” S/he also argues that 11 USC § 524(j) authorizes communications like the periodic statement.

In response to a question from the moderator, the commenter agreed that some borrowers who have gone through bankruptcy and are walking away from the mortgage may not want to get statements. Therefore, the suggestion is framed so that borrowers should be entitled to request and receive statements and online access to account information.

This commenter added a subsequent update that, after submitting a formal complaint through CFPB, the servicer agreed to allow online access, but still refused to provide periodic statements “to preserve certain debt collection rights.” Also, the online access is very limited, compared to what his/her original servicer provided: “the online information is very rudimentary, not detailed enough to show year-to-date details. The statement area is blocked. This means the HAMP incentive accrual and disbursement is not shown and can not be tracked. Are they planning on keeping the HAMP incentives?” The servicer said it is continuing to investigate the case, but the commenter is frustrated that it is “spend[ing] time and resources negatively towards the homeowners rather than positively” and that s/he has no control over having to deal with this servicer.

§6. Greater levels of standardization

Developing at greater length the idea (expressed by a commenter in the servicer transfer discussion) of a universal mortgage identifier, one commenter (a consumer who had personal or family experience with a mortgage being foreclosed) argued for use of a standard number consisting of the “4 letter original lender code followed by a dash then loan number.” This number would appear on the closing documents and “cannot be altered for the life of the loan.” Such an identifier would enable creation of a nationwide database that contained chain of title, liens, taxes, etc. (This commenter was highly critical of MERS [Mortgage Electronic Registration Systems]) The identifier would appear on the periodic statement and other documents. It could be used by bank investigators as well as borrowers to keep track of important loan documents and to discover and remedy mistaken and fraudulent charges.