QUESTION
In the last few months, we have had an increase in consumer complaints. Most of them
have to do with issues at our servicing department. However, we get complaints
about our loan originating department, too.
Our complaint log for the originations department is small compared to the one for our servicing department. We want your firm to conduct an internal audit of our servicing department. I spoke with your representatives, and they sent me helpful material. We’re scheduling you for September.
We would like to know more about the types of complaints that involve mortgage servicing. Our servicing manager is particularly interested in learning about forbearance complaints.
So, what kind of forbearance complaints are typical in servicing these days?
ANSWER
Complaints relating to mortgage servicing have been increasing. What your question does
not mention is the effect of the pandemic on triggering consumer complaints
involving servicing. The pandemic was declared a national emergency due to
COVID-19. The CFPB issued legislative and policy responses aimed at assisting
mortgage borrowers. Given the toll that the pandemic took on people’s financial
stability, it should come as no shock that high on the list of complaints is the
forbearance issue.[i]
There were 2.7 million borrowers in active forbearance as of January 2021. Many of these borrowers had been in forbearance for more than a year.[ii] As of April 2021, a good portion of those borrowers have missed three months' payments.[iii]
I will offer a response based on my firm’s experience providing servicing compliance support as well as the Bureau’s recent Complaint Bulletin in May 2021. The CFPB found[iv] that four significant statistics reflect the huge number of complaints. These are:
1. The volume of overall mortgage complaints increased to more than 3,400 complaints in March 2021 – the highest monthly mortgage complaint volume in nearly three years.
2. Some consumers experience various communication issues related to forbearance plans and options available at the end of these plans.
3. Some consumers described confusion with mandatory account notices.
4. Some consumers reported long delays in modifying their loans to address forborne payments.
The range of complaints includes such issues as applying for a mortgage or refinancing an existing mortgage; closing on a mortgage; problems with a credit or consumer report; struggling to pay the mortgage; and trouble during the payment process. The most common issue reported since January 2020 has been the difficulties encountered during the payment process.
Indeed, the number of borrowers delinquent on their mortgage has doubled since the beginning of the pandemic.[v] By “delinquent” is meant borrowers who are behind on their scheduled payments. Many of these borrowers are in forbearance and are reported as current on their credit reports vis-à-vis the CARES Act.
Furthermore, although the number of borrowers struggling to pay their mortgage increased in March and April 2020, the number decreased in the following months. It picked up again in 2021 and has just regained pre-pandemic levels.
According to the CFPB, it received approximately 38,100 mortgages (origination and servicing) complaints from January 1, 2020 through March 31, 2021. This is around 5% of all complaints the CFPB received during this period. Mortgage complaint volume has averaged about 2,500 per month since January 2020. But in March 2021, the volume of mortgage complaints spiked 36% to more than 3,400, which appears to be the highest such volume to date.
Take a look at this chart.
Mortgage Complaint Volume
Indexed by Month[vi]
To put the chart in perspective, the decreases may be explained, in part, by relief provided by the CARES Act, which was effective in March 2020.[vii] I will not provide all the ways the CARES Act addressed forbearance concerns; however, a few relevant areas include such assistance as requiring only an attestation of hardship due to COVID-19, which permitted borrowers to obtain relief quickly; homeowners with an eligible mortgage who had experienced financial hardship due to the pandemic had the right to request and obtain forbearance on their mortgage for up to 180 days; and, homeowners had the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days).
In February 2021, the Federal Housing Finance Agency (FHFA), Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) announced they were expanding their forbearance programs beyond the minimum required by the CARES Act for a maximum of up to 18 months of forbearance for borrowers who requested additional forbearance by a date certain.[viii]
Although the number of mortgage forbearance complaints is increasing, their share of overall mortgage complaint volume peaked at more than 20% in April 2020. Since that point, they have remained in the range of 11 to 14% of overall volume, which, according to the CFPB, suggests that several issues are contributing to the increase in mortgage complaints.
When indexed on a monthly basis, this chart shows mortgage forbearance complaints as a percentage of overall mortgage complaints.
Mortgage
Forbearance Complaints as a Share of Mortgage Complaints Overall
Indexed
by Month[ix]
Concerning your question about what kind of forbearance complaint is typical in servicing these days, I would say the most usual complaint involves servicer communications with consumers. Lack of clarity in communications leads to consumer frustration, especially when the answer is relatively easy for the servicer to provide, such as informing consumers about when their forbearance period ended, what would happen to forborne payments, and if the forbearance period could be extended.
Based on the review of complaints
and servicers’ responses, the CFPB has taken the position that consumers would
benefit from more precise communication from servicers over the phone and in
writing. As the Bureau has stated, in part:
Consumers appear concerned about their forbearance plan end date and available loss mitigation options, especially options that would resolve forborne payments (e.g., deferment). Complaints also suggest that at least some consumers are anticipating the end of their forbearance plans; therefore, servicers that are proactive in communicating before the end of the forbearance period may help give consumers sufficient time to understand all available relief options and to apply for help.[x]
Additionally, servicers must provide several written and oral notices to consumers. For instance, no later than the 36th day of delinquency, the servicer is generally required to make good faith efforts to establish live contact with the consumer to inform them of certain loss mitigation option information.[xi] Or, no later than the 45th day of delinquency, in most circumstances, the servicer is also required to provide the borrower a written notice concerning their delinquency and providing specific information about loss mitigation options.[xii]
Consumers have expressed confusion when their monthly mortgage statement indicated that their mortgage loan account was delinquent during a forbearance period. In evaluating this challenge, the CFPB believes that “it may be helpful for servicers to more clearly communicate to borrowers about whether their mortgage loan could be considered delinquent during a forbearance plan.”[xiii]
One other area of complaints is consistently a problem: loan modifications following a forbearance period. Complaints include long delays in servicers establishing an FHA partial claim or otherwise modifying their loan to address forborne payments. Or, delays were due to additional document requests from servicers. Other consumers reported receiving conflicting information about potential relief options that were later denied because the borrowers did not meet certain criteria.
Finally, from the Bureau’s point of view,[xiv] I will provide several issues that servicers will have to navigate as consumers extend or exit forbearance plans.
Those issues include:
- Difficulty reaching a servicer representative to talk through options;
- Needing to correct inaccurate credit information furnished about a loan in forbearance;
- Ensuring that the principal balance is accurate after a deferral plan becomes effective;
- Providing accurate information about loan status and relief options during forbearance;
- Accurately communicating that no written application would be required to extend a forbearance plan;
- Not imposing an inspection fee, late payment fee, or modification fee during a CARES Act forbearance period; and,
- Accurately applying payments while a loan is in forbearance or while the post-forbearance review is ongoing, including after a servicing transfer.
Be sure to review all relevant policies and procedures to ensure that they reflect the Bureau’s expectations and applicable regulatory requirements. I also suggest routinely conducting testing, training, risk assessments, servicing quality control, and internal audits.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
[ii] Protection for Borrowers Affected by the COVID-19 Emergency under the Real Estate Settlement Procedures Act (Act), Regulation X, FR, 12 CFR Part 1024, Bureau of Consumer Financial Protection, Proposed Rule, p. 14, et sequi
[iii] Idem p. 17
[iv] May 2021 Complaint Bulletin: Mortgage Forbearance issues described in Consumer Complaints, Consumer Financial Protection Bureau. I will be using certain graphics and some direct findings from this Bulletin.
[v] Housing Insecurity and the COVID-19 Pandemic, p. 6, March 2021, CFBP, available at https://www.consumerfinance.gov/documents/9512/cfpb_Housing_insecurity_and_the_COVID-19_pandemic.pdf
[vi] Op. cit. 4, Figure 1
[vii] 15 U.S.C. § 9056(c), Coronavirus Aid, Relief, and Economic Security (CARES) Act
[viii] See Press Release, The White House, Fact Sheet: Biden Administration Announces Extension of COVID-19 Forbearance and Foreclosure Protections for Homeowners, February 16,2021). Inter alia.
[ix] Op. cit. 4, Figure 4
[x] Op. cit. 4, p. 9
[xi] 12 CFR 1024.39(a)
[xii] 12 CFR 1024.39(b)
[xiii] Op. cit. 4, p. 10
[xiv] Op. cit. 4, p. 11
