Consumer Financial Protection Bureau (CFPB) complaints are difficult to track and address, but they can potentially cause significant reputational damage to mortgage lenders and servicers if common issues in the complaints are not handled properly, according to a recent report from CoreLogic.
The report states they used CoreLogic tax servicing data to evaluate the reasons for CFPB mortgage complaints and found that the number of overpayment-related escrow account refunds is one of the main factors of these complaints.
The report also states that escrow accounts are often required by the lender or servicer to pay taxes and hazard insurance premiums for the borrower on top of monthly mortgage payments and likewise, the servicers typically evaluate the principal, interest, tax, and insurance on an annual basis and charge borrowers on a monthly basis. CoreLogic reports that if the borrowers overpay, they will receive a refund at the end of the year, and the overpayment can be due to various reasons such as borrower overpayment during closing, double payments by both the borrower and the servicer and inaccurate annual bill estimation.
Where the problem lies according to the report is if borrowers learn that they have been overpaying for months without the opportunity for a refund. If the borrowers have a non-escrow account, on the other hand, they will be responsible for all the tax and hazard insurance payments and can potentially encounter penalties from the taxing agency for late payments.
CoreLogic determined after extracting complaints data from the CFPB’s official website from January 2013 through December 2015 for four relevant complaint categories: loan servicing, payments, escrow account; application, originator, mortgage broker; settlement process and costs; and credit decision/underwriting, that mortgage servicers can achieve a significant reduction in borrower complaints by improving the accuracy of their yearly mortgage bill estimation and more efficiently processing refunds to the borrowers. But even with this information, the question remains: are these CFPB complaints an accurate representation of these servicers and lenders?
The Five Star Institute and Black Knight Financial Services came together in March of 2015 in a white paper examining how the mortgage-related complaints received by the CFPB are on the decline after an initial ramp-up period, and delinquent loans and foreclosures have also decreased. The report seeks to address of the question of whether these two stats are falling at the same rate and if there is a correlation between the two.
For the comparison of complaint trends and loan trends, the comparison revealed that complaints in the category of “loan modification, collection, and foreclosure” declined by more than 50 percent on an absolute basis and by 35 percent on a relative basis versus non-current loan inventory. This translates to a rate of about 13 complaints per 10,000 non-current loans as of Q4 2014. Meanwhile, the rate of complaints received in the “loan servicing, payments, and escrow account” was reported to be only one for every 10,000 current loans in Q4, which calculated to just 0.77 basis points.
“When the data presents that there are 13 complaints per 10,000 non-current mortgage loans, we need to ask the question if the criticism mortgage servicers are receiving is warranted, and if these numbers instead align more closely with the normal course and expectations of doing business,” said Ed Delgado, President and CEO of The Five Star Institute.