Mortgage complaints are nearing a three-year high, especially when it comes to forbearance, and the Consumer Financial Protection Bureau (CFPB) is paying close attention. Meanwhile, borrowers in forbearance or delinquency are significantly more likely to come from communities of color and lower-income communities.
According to the CFPB’s Complaint Bulletin: Mortgage forbearance issues described in consumer complaints, March saw more than 3,400 mortgage complaints. Over the past three years, that figure has averaged around 2,500 complaints.
Complaints rose in all areas including issues in processing payments, applying for a mortgage or refinancing an existing mortgage loan, struggling to pay a mortgage, closing on a mortgage loan, and mortgage forbearance.
Let us take a closer look at the trends.
Mortgage forbearance complaints
In January 2021, there were 2.7 million mortgage borrowers in forbearance. Now that it is May 2021, it is likely that many of these borrowers have been in forbearance for at least a year and have missed more than three months of payments.
With forbearance ending after 12 months, borrowers have been trying to understand what happens next, and some lenders need to do a better job explaining it. One of the most common CFPB forbearance complaints is that phone calls to servicers are not resulting in clear, accurate answers. Borrowers want to know how missed payments will be handled (lump sum payment, repayment plan, loan modification, or deferral). It is not always clear to borrowers that deferrals are available or cannot begin until after forbearance ended.
How to avoid this complaint: Make sure your written communications clearly lay out all the options available and that staff is trained and understands how to provide accurate information to callers. Also, give borrowers plenty of notice before forbearance ends so they have time to understand the process and apply for help, if needed. Proactively reach out to borrowers in forbearance.
Related: Consumer Complaints Are at an All-Time High. What Are You Doing About It?
Consumers don’t understand why loans in forbearance are delinquent
Just because a loan is in forbearance does not mean a borrower cannot be delinquent. For instance, borrowers that were delinquent before forbearance remain delinquent during forbearance and federal law requires that their loan statements reflect that status. This common misperception was the source of numerous complaints.
How to avoid this complaint: Instead of explaining the issue to an upset borrower, servicers should proactively reach out to borrowers with a simple, clear explanation of why they are in delinquency and provide any federally required notices.
Borrowers are often busy, stressed, tired, or overwhelmed (or a combination of all four). Whenever drafting disclosures or other communications, try to make it as simple and easy to understand as possible. It is also smart to anticipate this problem (or identify it from an analysis of your tracked complaints) and make sure staff is trained to defuse situations with angry borrowers and provide a clear, knowledgeable explanation.
Inaccurate or confusing information about loan modifications
Some borrowers complained about long delays in servicers establishing an FHA partial claim or loan modifications. They also complained about receiving conflicting information and were later denied. These complaints were often related to the need for additional documentation from servicers.
How to avoid this complaint: The CFPB says that communicating with borrowers throughout the loss mitigation process, especially when it comes to denials, is important. It also says ensuring compliance with notices required by Regulation X can help prevent complaints.
Related: How COVID-19 Is Impacting Fair Lending Compliance
Other common complaints
Other complaints related to mortgage forbearance include:
- Difficulty reaching a service representative to talk through options.
- Needing to correct inaccurate credit information furnished about a loan in forbearance.
- Ensuring that the principal balance is accurate after a deferral plan becomes effective.
- Providing accurate information about loan status and relief options during forbearance.
- Accurately communicating that no written application would be required to extend a forbearance plan.
- Not imposing an inspection fee, late payment fee, or modification fee during a CARES Act forbearance period.
- Accurately applying payments while a loan is in forbearance or while the post-forbearance review is ongoing, including after a servicing transfer.
In each of these cases, the likelihood of receiving complaints could be reduced with an effective compliance management system (CMS). A good compliance
management program includes:
Policies and procedures. Well-written and detailed policies and procedures provide standards for the mortgage and servicing functions. It clarifies what options are available, how decisions are made, the necessary documentation, and the timeline for completion. These documents should be updated and readily available in a centralized location such as an employee intranet.
Training. Regular compliance training is essential, especially as requirements and trends change. Training needs to be comprehensive and relevant to the job being performed. It is especially important to conduct training for the frontline employees who deal directly with those facing forbearance and delinquency so they can get the accurate information they need.
Monitoring and/or audit. A financial institution needs a way to check its work. There should be systems to identify, measure, and monitor risk and make adjustments. This also allows the FI to make proactive changes when deficiencies are identified.
Consumer complaint response. Complaints are not just important from the perspective of customer service. They are also a treasure trove of data that can give you an early alert when something is wrong. This is particularly important because examiners want to see a prompt and thorough response to complaints, and management needs the ability to assess complaints for consumer harm.
Do not let mortgage complaints go unnoticed. Make sure you have a strong compliance management program, including a consumer complaint response. Examiners will be looking for it.
Discover even more by reading our helpful guide on building your own lending compliance management system.
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