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TheStreet Open House

Mortgage Servicers' Problems Persist

NEW YORK ( TheStreet) -- Even after a massive foreclosure settlement following the "robo-signing" scandal and the implementation of new servicing standards designed to protect borrowers, bank and non-bank mortgage servicers continue to do an abysmal job handling borrower payments and paperwork.

The Consumer Financial Protection Bureau on Wednesday issued a report that found that mortgage servicing problems continue at bank and non-bank servicers.

Mortgage servicers are responsible for collecting payments from mortgage borrowers on behalf of loan owners. They also typically handle customer service, escrow accounts, collections, loan modifications and foreclosures.

Big banks such as Bank of America (BAC - Get Report), Wells Fargo (WFC - Get Report) and JPMorgan Chase (JPM - Get Report) have been pulling out of this business, transferring mortgage-servicing rights to non-bank servicers, such as Ocwen Financial (OCN - Get Report), Nationstar (NSM - Get Report) and Walter Investment Management (WAC).

But the transfers have added to the headaches for borrowers. The CFPB report found that the transfers in some cases caused consumers to miss payments and affected the good standing of the loan.

Paperwork, including important loss mitigation documents, was disorganized. Servicers often failed to tell borrowers about the transfer.

Servicers provided inadequate notice to borrowers about a change in address to send payments, resulting in late payments. In some cases, they paid property taxes too late, resulting in the borrowers' ability to claim a tax deduction for the year they planned.

The more egregious errors could go so far as to send consumers into foreclosure. Examiners for the CFPB found among other things "Inconsistent communications with borrowers, giving them conflicting instructions for loss mitigation processes; Inconsistent loss mitigation underwriting, waiving certain fees and interest charges for some borrowers but not others; Long application review periods, making the loss mitigation process especially hard on consumers whose accounts are also dual-tracked for foreclosure; Incomplete loan files, making it challenging for consumers to find out about their loan modification applications when they call the servicer for help; Deceptive communications to borrowers about the status of loan modification applications, leading some consumers to faster foreclosure."

Sounds all too familiar.

The CFPB also found non-banks in particular to lack good compliance systems that would help ensure that they adhere to federal regulations. They also did not have formal written documents that instructed employees on the appropriate method for executing their responsibilities.

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