CFPB calls out mortgage servicers for ‘doom loop’
The Consumer Financial Protection Bureau (CFPB) this week released a new report finding that mortgage companies often “create obstacles” for homeowners, leading to what it calls a “customer service doom loop” if a death or divorce impacts the original borrower of a mortgage loan.
“Many homeowners report that their servicers push them to take on new, higher-interest loans instead of keeping their existing mortgage,” the CFPB said of the report’s findings. “Homeowners also report recurring requests from servicers for the same or updated documents extending over months and sometimes years, at the same time they are dealing with the death of a loved one or a divorce.”
CFPB Director Rohit Chopra emphasized the ways that dealing with a death or marital separation are only compounded by issues the report identified.
“When someone loses a spouse or goes through a divorce, the last thing they need is their mortgage servicer giving them the runaround or pushing them into an unaffordable loan,” Chopra said. “Mortgage servicers have clear obligations under federal law to help these homeowners.”
The challenges become more acute for survivors of domestic violence, which includes mortgage companies continuing to “send critical mortgage information to the abuser and thus putting the survivor’s safety at risk,” the Bureau said. “Servicers generally blame investor requirements, processing volumes, or ‘systems issues,’ rather than taking responsibility for their shoddy customer service.”
Consumer complaints submitted to the CFPB highlight four key issues that it says must be better handled by mortgage companies and servicers. These include feeling pressured to refinance their loans despite having previously secured a lower mortgage rate during the original transaction; and delays and paperwork requests which can stretch on for years and include duplicative paperwork requests for documents the borrower previously submitted.
Servicers in some cases also refuse to release an original borrower from liability.
“Some homeowners report that servicers are denying their requests to remove the original borrower from the mortgage, even when the successor homeowner has been making all payments on the mortgage for years,” the Bureau said, in addition to the aforementioned challenges for domestic violence survivors.
Veterans impacted by these issues are encouraged to contact their servicers directly if impacted by these problems, but if they are caught in the “doom loop” then they are urged to contact their “nearest VA Regional Loan Center and speak with a VA representative regarding their individual home loan situation for counseling and guidance.”
The Bureau also urges investors and guarantors to take more proactive steps in addressing the report’s findings, including reviewing “mortgage servicers’ policies and procedures to ensure that they are complying with all applicable law and guidance, including the guidance provided by the federal mortgage agencies” while ensuring policies are “not unnecessarily pushing successor homeowners to refinance their mortgages.”
Investors and guarantors are also urged to examine their underwriting requirements to determine if they pose “an undue obstacle to mortgage assumptions where the successor demonstrates an ability and willingness to pay;” and to “develop, with mortgage servicers, policies and procedures to protect the rights and safety of successor homeowners who are survivors of domestic violence.”