The CFPB is proving to be tough minded on the mortgage front. The Wall Street Journal reports that it intends to require banks to consider a modification request before proceeding with a foreclosure:
Under the Consumer Financial Protection Bureau’s proposal, loan servicers would be required to evaluate homeowners’ applications for loan-assistance within 30 days of receiving an application and would be barred from going ahead with a foreclosure until a final decision has been reached on a borrower’s application for help.
The article indicates that the big servicers won’t like this because they will “make less money” and will fob the work on to special servicers. This would be written more accurately as “servicers will lose more money.” Servicing portfolios with high levels of delinquencies is wildly unprofitable; that’s why servicers cheat so much these days. Of course, lousy servicer economics will be used to argue for seriously watering down this proposal. I hope the CFPB is not moved.
On top of this, the industry has such lousy infrastructure that I doubt the sort of servicers the article names as “special servicers” such as Ocwen and Nationstar, could give a response in 30 days. Ocwen and its peers have gotten so large that they are highly routinized and no longer able to do high touch servicing. There is a group of smaller servicers that may well be up to the task, but I doubt they have remotely enough capacity if the big banks start dumping their portfolios on other players.
That’s a long-winded way of saying I hope the CFPB has budget for a robust compliance and enforcement effort for this initiative. They’ll need it. The industry isn’t even remotely set up to comply, and violations will be commonplace. But this will save some borrowers, and even the ones who still get chewed up despite the new rules will presumably have a clearer path to restitution.