The consumer financial watchdog on Monday warned mortgage servicers that they must extend legal protections to customers when transferring their loans to another company, and said it will pursue enforcement actions against those who do not comply.
The Consumer Financial Protection Bureau issued a bulletin reminding servicers that they should not lose paperwork or compromise troubled borrowers' chances of avoiding foreclosure.
The warning comes as many big banks are deciding that collecting mortgage payments on some loans is too costly, and are unloading these assets. New capital rules do not give as much credit to mortgage servicing rights, and heightened regulatory scrutiny have made the assets less desirable.
Bank of America Corp last month agreed to sell the rights to collect payments on $300 billion in mortgages and is looking to sell mortgage servicing rights on another $100 billion in loans, sources have told Reuters.
Ally Bank has also reportedly been looking to sell off a large portfolio of mortgage collection rights. Smaller companies that specialize in managing these collection rights are snapping up the assets.
The CFPB said its concern about potential mortgage servicing transfer abuses has increased due to the volume of recent transfers.
"Consumers should not be collateral damage in the mortgage servicing transfer process," CFPB Director Richard Cordray said in a statement.
Mortgage servicers collect monthly payments from borrowers on behalf of the investors that own the loans. That often involves letting borrowers know about the status of loans, modifying the loans for those struggling to make payments on time, and handling foreclosures.
In January, the CFPB announced news rules requiring servicers to follow clear procedures to help troubled borrowers seeking alternatives to losing their homes. The rules also restrict what is known as dual-tracking, in which servicers simultaneously pursue a loan modification and the foreclosure process.
The CFPB on Monday said that it is also make servicing transfers a big focus of its supervision of both banks and non-banks.
In particular, it will look at what steps servicers have taken to ensure they provide customers accurate information, whether the paperwork transfer is handled smoothly, and whether loan modifications are honored by the new servicers.
The Federal Housing Finance Agency and the U.S. Department of Housing and Urban Development issued statements on Monday supporting the CFPB's scrutiny.
(Reporting By Karey Wutkowski, with additional reporting by Margaret Chadbourn; Editing by Andrea Ricci)