By Nancy Wilberg Ricks, Senior Policy Communications Strategist, NCLR
(Cross-posted from the Home For Good blog)
Homeowners throughout the nation have seen an uptick in mortgage servicing challenges that range from frustrating to abhorrent. As banks look to specialized mortgage servicing companies to take over their loans, families are experiencing an increase in the same problems that surfaced during the financial crisis—lost paperwork, mortgage fee inaccuracies, and wrongful foreclosures that at times result from a mere computer glitch.
These mortgage servicers are lightly regulated, little-known firms that act as intermediaries between banks and homeowners. In 2010, they provided 3% of all mortgage servicing. After exploding in growth, today they make up a full one-sixth of the market.
While banks find it appealing to unload the burden of managing these loans and their related obligations, evidence suggests that the new firms are worse at keeping track of homeowners’ mortgages than the banks were.
A growing portion of the housing market, Latinos will compose half of all new homebuyers by 2020. With Latinos already reeling from the Great Recession, which destroyed decades of intergenerational wealth and cost more than one million Hispanic families their homes, this is an ominous turn for the worse.
Latino families are still fighting foreclosure and living with underwater mortgages that they often cannot refinance. The solution must not be for banks to simply sell off families’ mortgages to specialized servicers that will not prioritize homeowners’ basic legal rights.
Unlike the nation’s largest banks that handle mortgages, the two largest specialized servicing companies, Ocwen Financial Corporation and Nationstar Mortgage, approve fewer mortgage modification requests than even the least generous of banks. In fact, some go so far as to rescind modifications that banks already approved and processed. While large banks approved modifications between 29% and 44% of the time, these servicing firms approved only 22–23% of applications.
We take heart in some improvements, however. Last year, the Consumer Financial Protection Bureau (CFPB) released its provisions for sensible mortgage servicing applied to the entire industry. This January, it implemented the new rules after working with servicers throughout 2013 to ensure they were ready for the rollout. Such rules include a ban on “dual tracking,” whereby a lender confusingly engages in loan modification and foreclosure proceedings at the same time. Under the new rules, servicers must have the capacity to answer questions over the phone and provide information about the homeowner’s foreclosure status. These seem like the basics of good business, but we know from the crisis that they are anything but part of standard market practice.
Banks that cut corners by selling mortgages to specialized servicing firms have created dangerous circumstances in which homeowners’ basic legal rights are being violated. For the CFPB, enough is enough. Just today, Steven Antonakes, Deputy Director of the CFPB, publicly stated that servicers have already had more than a year to improve their practices and align their model with the recently implemented rules. He further stated that the CFPB would move swiftly to stop violators. These words are underlined by the CFPB’s initiative to respond to consumers directly through its consumer complaint portal, where families at their wit’s end can seek assistance.
Regardless of who services a mortgage, America’s homeowners deserve observance of the CFPB’s improved protections that are now required by law: decent customer service, an end to dual tracking, and fair consideration for refinancing if a mortgage is unaffordable or under water. Without this, homeowners will continue to bear the burden of an incompetent servicing industry and remain at risk of losing their home, along with decades of accumulated wealth, to a technical glitch. This is unacceptable, so the CFPB has committed to proving it is changing business as usual in the mortgage finance industry.