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MoFo Reenforcement The Enforcement Blog

Supervisory Haiku-lights, Summer 2015

Posted in CFPB, Credit Reports, Fair Lending, Mortgage, Supervisory Highlights

Break out the short shorts everybody: it’s summer! We know you could use a palate cleanser between the 50 Shades novels and Game of Thrones wikis you’re reading on the beach. Supervisory Haiku-lights to the rescue! The Summer 2015 issue of Supervisory Highlights includes supervisory observations on consumer reporting, debt collection, student loan servicing, mortgage origination, mortgage servicing, and fair lending. We’ve provided some highlights of the highlights, in haiku, of course, below.

deleting trade lines

with no investigation

is anyone harmed?

Debt collection observations are a regular feature in Supervisory Highlights, and this issue was no exception. In addition to detailing weaknesses in debt collectors’ compliance management systems, including failure to keep up on required training and to record certain consumer complaints, Supervision made a couple of observations related to the debt collectors’ compliance with the Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V. One of these observations was that, when consumers dispute information on a credit report, one or more debt collectors simply delete the trade lines without conducting an investigation or sending a correction to the relevant credit reporting agency (CRA). The FCRA and Regulation V require furnishers to conduct a reasonable investigation with respect to disputed information after receiving a dispute notice from a consumer or CRA. The furnisher is also required to report the results of the investigation to the consumer within a specified timeframe, notify the CRA, and correct any inaccurate information. Of course, usually, an investigation showing incorrect information would result in . . . deleting the trade line. The observation does not clearly state how consumers are harmed by automatic deletion of the trade line in response to a dispute. But it shows that Supervision believes furnishers may not skip ahead to the punch line.

loss mitigation

unfair practices happen

at many stages

Compliance with the CFPB’s mortgage servicing rules appears to be a priority for Supervision, and this issue sets forth a slew of findings in the areas of loss mitigation, foreclosures, periodic statement disclosures, and compliance with the Homeowners Protection Act. A significant number of the findings concerned loss mitigation, the requirements for which are set forth in Regulation X. Reg X requires that servicers notify borrowers in writing within five days after receiving a loss mitigation application, acknowledging that it received the application and stating whether it is complete or incomplete. If incomplete, the servicer must include in the notice a list of the additional documents and information needed. Supervision found a variety of issues with servicers’ handling of these acknowledgement notices, including failure to send the notice at all, sending notices that requested sometimes dozens of documents that were inapplicable to the borrower’s circumstances and that were unnecessary for evaluating the loss mitigation application, or requesting documents the borrower had previously submitted. In some instances, failure to send the notice, Supervision said, amounted to an unfair practice.

Additionally, Supervision noted that it is continuing to examine for “risks inherent in transferring loans in loss mitigation, including the risk that information is not accurately transferred between servicers.” There were instances, the Bureau noted, when servicers failed to honor the terms of trial modifications after transfer, or of substantial delays in receiving permanent loan modifications from a new servicer. Supervision concluded that these delays were unfair to consumers. It found that the delays caused substantial injury, in that the trial payments were less than the amount required by the promissory note, and consumers continuing to make trial payments while awaiting a permanent mod would accrue interest on the unpaid principal, that consumers could not reasonably avoid the injury, and that the practice is not outweighed by countervailing benefits.

note to CRAs

keep your eye on furnishers

and QC too, thanks

The FCRA requires CRAs that create a consumer report to “follow reasonable procedures to assure maximum possible accuracy of information” in the report. Regarding oversight of furnishers, CFPB examiners found several weaknesses related to vetting and overseeing new furnishers. In the context of data monitoring, examiners found that one or more CRAs lacked formal programs to oversee and manage data supplied by furnishers. Examiners also found that one or more CRAs lacked systematic or consistent policies and procedures to provide feedback to furnishers regarding the quality of the data furnished. Moreover, one or more CRAs did not have defined processes to verify the accuracy of public record information provided by their public records providers. Finally, regarding quality control, examiners found that one or more CRAs had no quality control policies and procedures to test compiled consumer reports for accuracy.

Section 8 money

is also green as any

under ECOA (*)

Echoing the last issue’s observation concerning the Equal Credit Opportunity Act (ECOA) / Regulation B prohibition on discrimination by a creditor against an applicant “because all or part of the applicant’s income derives from any public assistance program,” 15 USC 1691(a)(2); 12 CFR 1002.2(z), 1002.4(a), Supervision noted this time that institutions may not exclude or refuse to consider income derived from Section 8 mortgage assistance. “Public assistance,” for the purpose of the regulation, includes “[a]ny Federal, state, or local governmental assistance program that provides a continuing, periodic income supplement, whether premised on entitlement or need” including, but not limited to “mortgage supplement or assistance programs . . . .” Official Staff Commentary, 12 C.F.R. pt. 1002, Supp. I, 2(z)-3.

The Section 8 Housing Choice Voucher (HCV) Homeownership Program was created to assist low-income, first-time homebuyers in purchasing homes. The program is a component of the Department of Housing and Urban Development’s (HUD’s) Section 8 HCV Program, which also includes a rental assistance program. As such, although limited to approximately 2,000 borrowers nationwide, mortgage assistance provided under the Section 8 HCV Homeownership Program is income derived from a public assistance program under ECOA and Regulation B.

Supervision noted that one or more institutions was found to have excluded or refused to consider income derived from the Section 8 HCV Homeownership Program during the mortgage loan application and underwriting process. Some institutions have restricted the use of Section 8 HCV Homeownership Program vouchers to only certain home mortgage loan products or delivery channels. In response, the Bureau has required one or more institutions to identify borrowers who, due to their reliance on Section 8 HCV Homeownership Program vouchers, were either denied loans, or discouraged from applying; and to provide those borrowers with financial remuneration and an opportunity to reapply.

(*) I know, we kind of recycled this haiku. Cut us some slack, it’s summer!