CFPB mortgage servicing rules eliminate excuses not to provide transparency for RMBS

The Consumer Financial Protection Bureau announced its new mortgage servicing rules that eliminate any excuse the structured finance industry has for not providing observable event based reporting on residential mortgage-backed securities.

Under the new rules, mortgage servicers, the firms that manage the loans, will now be required to credit a borrower's account the day a payment is receive.  In addition, the mortgage servicers must provide borrowers with regular statements that show a breakdown of payments by principal, interest, fees, and escrow as well as recent account activity.

For anyone who is familiar with looking up their credit card account on-line, the CFPB has said that mortgage servicing firms need to provide similar information in a timely manner.  From an IT perspective, this is easy to do because both mortgages and credit card databases update whenever there is activity on the account.

I can not stress enough the importance of the CFPB's mortgage servicing rules.  The ability of mortgage servicers to comply with these rules means by definition that observable event based reporting can be provided for all residential mortgage-backed securities.

As regular readers know, observable event based reporting involves reporting all activities like payments or delinquencies involving the underlying collateral to market participants before the next business day.

This is the same information that mortgage servicers need to "report" to borrowers.

As a result, there is no longer any excuse for the structured finance industry to block the provision of observable event based reporting.

To prevent harm to consumers in routine payment processing, our rules also require common-sense policies and procedures. Payments must be promptly credited as of the day they are received.... 

In general, servicers must maintain accurate and accessible documents and records. They must be able to provide accurate and timely information to borrowers, mortgage owners (including investors), and the courts. 

These provisions will prevent the egregious “robo-signing” practices that were rampant from ever happening again. These obligations apply even through transfers of servicing rights between firms; both the transferor and the transferee have the same duties to maintain accurate information about an account. This cuts off yet another frequent source of harm to consumers.