The CFPB launches its nonbank supervision program (From the CFPB)

A Beginning


Today marks an important step forward for the CFPB as we work to protect consumers. Going forward,
the CFPB will expand its bank supervision program (which began last July) to nonbanks, ensuring that
banks and nonbanks play by the same rules.
Before we get ahead of ourselves, it makes sense to remember what a nonbank actually is. A “nonbank”
is a company that offers or provides consumer financial products or services but does not have a bank,
thrift, or credit union charter.
There are currently thousands of nonbank businesses that offer consumer financial products and services,
and consumers interact with them all the time. If you’ve taken out a payday loan, received a call from a
debt collector, or accessed your credit report, you may well have done business with one yourself. These
common transactions add up to a big part of the overall market for consumer financial products and services,
and the importance of nonbanks has grown substantially over the last few decades.
While banks, thrifts, and credit unions historically have been examined by various federal regulators,
nonbanks generally have not. Until today. By requiring the CFPB to examine nonbanks, the Dodd-Frank Act – the
law that established the CFPB – sought to ensure that consumers get the benefit of federal consumer financial
laws on a consistent basis. This consistent supervisory coverage will help level the playing field for all industry
participants to create a fairer marketplace for consumers and the responsible businesses that serve them.

The Big Picture for the Nonbank Supervision Program


The CFPB’s supervision program for very large banks, thrifts, and credit unions – those with assets of over
$10 billion – began operations on July 21, 2011. The CFPB’s nonbank supervision will now begin in phases.
Effective immediately, the CFPB has authority to oversee nonbank businesses, regardless of size, in certain
markets: mortgage companies (originators, brokers, and servicers, and loan modification or foreclosure relief services);
payday lenders; and private education lenders.
For all other markets – such as debt collection, consumer reporting, auto financing, and money services
businesses – the CFPB may supervise “larger participants” after defining what “larger participant” means. We
already have taken important first steps to develop a “larger participant” rule – that is, we asked for public
feedback on developing a rule. So far, we’ve received thousands of public comments and have met with trade groups,
consumer and civil rights groups, and various state and federal regulators to get their input.
Based on their feedback, we have been hard at work preparing an initial “larger participant” rule. We will issue a
proposed initial rule very soon. We will notify you on this blog when we announce the publication of the proposed rule
and tell you how you can comment on our proposal.
The Dodd-Frank Act also says that the CFPB may supervise any nonbank that it has a reason to determine is engaging
or has engaged in conduct that poses risks to consumers with regard to consumer financial products or services.
The CFPB will be publishing rules setting out procedural guidelines for implementation of this provision.

Our Tools – Some of the Nitty Gritty


The purpose of the CFPB’s nonbank supervision is to prevent harm to consumers and promote the development of markets
for consumer financial products and services that are fair, transparent, and competitive. To accomplish these goals,
the CFPB will assess whether nonbanks are conducting their businesses in compliance with federal consumer financial
laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act.
What will we do? The CFPB’s approach to nonbank examination will be the same as its approach to bank examination. It
may include a combination of any of the following tools: requiring nonbanks to file certain reports, reviewing the
materials the companies actually use to offer those products and services, reviewing their compliance systems and
procedures, and reviewing what they promised consumers. In general, we will notify a nonbank in advance of an upcoming examination.
Consistent with the Dodd-Frank Act, the CFPB is implementing a risk-based nonbank supervision program. On an ongoing basis,
we will be assessing the risks posed to consumers in the relevant product markets. When considering whether and how to
supervise particular nonbanks, we will consider several relevant factors, including the nonbank’s volume of business, types
of products or services, and the extent of state oversight.
The CFPB will coordinate with other federal and state regulators. This coordination will help us allocate resources where
they are most needed and minimize burdens on the nonbanks.
We have built – and continue to build – a highly qualified supervision and examination staff to execute on all of these
important goals. Many examiners have come to the CFPB from state and federal bank and financial services regulatory agencies
and they bring extensive experience in conducting examinations. We are training all of our examiners in CFPB supervision policies
and procedures and integrating them into a coherent team. Our supervision staff will cover the nation, reporting to regional
offices in San Francisco, Chicago, Washington, D.C., and New York.

Ongoing Dialogue



As we move forward in building and implementing our supervision program, we will keep you informed of important
developments, policies, and procedures.
We also want to hear from you. We would like this blog to be part of an ongoing conversation with you about the CFPB
supervision program. If you have questions or comments about our supervision program, please provide them in the comment section below.

Consumer Financial Protection Bureau outlines mortgage servicing examination strategy

WASHINGTON – The Consumer Financial Protection Bureau (CFPB) today outlined its initial approach to
supervising mortgage servicers to ensure they comply with federal consumer financial protection laws.

“Mortgage servicing has a huge impact on consumers and is a priority for the CFPB,” said Raj Date, Special
Advisor to the Secretary of the Treasury on the CFPB. “The mortgage servicing market has been bogged
down by widespread reports of pervasive and profound consumer protection problems. We are going to take
a close and measured look at whether servicers are following the law.”

Mortgage servicers typically are responsible for collecting payments from the mortgage borrower on behalf of
the owner of that loan. They also typically handle customer service, escrow accounts, collections, loan
modifications, and foreclosures on behalf of the owner of a mortgage loan. In the vast majority of cases,
consumers do not choose their mortgage servicer. Mortgage servicing rights can be, and frequently are,
bought and sold among servicers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act gives the CFPB supervision authority over a
large number of mortgage servicers, allowing the agency to assess whether the servicers are following the
law. The Mortgage Servicing Examination Procedures released today by the CFPB describe the types of
information that the agency’s examiners will gather to evaluate mortgage servicers’ policies and procedures,
assess whether servicers are in compliance with applicable laws, and identify risks to consumers in servicing
operations.

Reports by other federal agencies have indicated that, starting with the financial crisis and continuing to
today, some servicers have failed to keep pace with an overall increase in mortgage delinquencies. Among
other things, these reports found that some servicers lost important documentation, experienced
well-publicized problems with foreclosure processing, and failed to communicate effectively with consumers
— letting telephone calls routinely go unanswered. There have also been reports that, because of widespread
delays and errors in the processing of transactions, some borrowers who qualify for loan modifications have
not received them in time to stop foreclosure.

The CFPB will focus initially on loans in default where consumers are struggling to make payments. CFPB
examiners will be looking to make sure that information provided to consumers about loan modifications and
foreclosures is timely and transparent. For example, examiners will review:

The CFPB will be conducting examinations of mortgage servicing practices as part of its supervision program.
The Mortgage Servicing Examination Procedures are a part of the more comprehensive CFPB Supervision
and Examination Manual, also released today. The broader manual is the field guide for examiners to be used
in supervising both depository institutions and other consumer financial services providers. The CFPB has
authority to examine the more than 100 large banks, thrifts, and credit unions that have assets over $10 billion,
and their affiliates. These institutions collectively hold a substantial majority of the banking industry’s assets.

Generally, CFPB supervision will be an ongoing process of pre-examination scoping and review of information,
data analysis, onsite examinations, and regular communication with supervised entities and prudential
regulators, as well as follow-up monitoring. When necessary, examiners will coordinate and work closely with
CFPB’s enforcement staff to take appropriate enforcement actions to address harm to consumers.

Pre-Funding Review:

After loan approval and prior to closing all borrowers will have their credit history re-verified by having a new credit report, all employment and deposit documents will have a verbal re-verifications performed, tax transcripts will be ordered, reviewed and compared to other credit documents using the 4506T obtained during processing and an independent Social Security number verification will be performed.

A sample selection consisting of one file per underwriter, per week will be sent to Mortgage Data Integrity, LLC. The file will be transferred after final approval and before closing, for an independent pre fundingreview. These files will not be sent to closing until after this review is completed.

Mortgage Data Integrity will compare the input data entered into the automated underwriting system against the supporting data in the file such as, but not limited to, the 1003 application, income documents, asset/funds documents and information contained in the credit report.

The borrower(s) social security number will be re-verified through comparisons with the file documents. Pay stubs, credit reports (original and soft pull prior to closing) and tax transcripts will be compared and matched.

Income and debt to income ratios will be re-calculated. Income and debt to income ratios will be checked for compliance with GSE, investor and mortgage insurer (if applicable) guides and overlays.

Borrower(s) employment will be re-verified through a telephone verbal verification.

Assets and funds required to close will be re-verified through faxed VOD’s.

The subject property’s value will be accessed via a real estate AVM showing the subject property and at least three comparable values.

If applicable, mortgage insurance premiums will be recalculated and checked for accuracy and coverage requirements.

All of the transactions participants will be checked against federal and agency LDP and ELPS records to insure no participants are excluded from participating in the transaction.

 

Revised Quality Control and Mortgage Eligibility Requirements in Guide Bulletin 2011-15

 

Effective for mortgages with settlement dates on or after December 1, 2011 , we are, in addition to other changes:

Other relevant Guide Chapters have also been updated to reflect the changes related to the QC review and mortgage file documentation requirements.

We are also revising the requirements in Chapter 48, Seller's In-House QC Program .

Effective December 1, 2011 , we are, among other things:

We encourage you to review Guide Chapters 46 and 48 in their entirety to become familiar with all the updates we are making to our QC requirements.