CFPB makes mortgage servicing a top priority

WASHINGTON (Reuters) - The new Consumer Financial Protection Bureau said on Thursday it will make oversight of the mortgage servicing industry a top priority as it ramps up its oversight of banks.

Numerous state and government agencies are examining bank foreclosure practices and whether the proper legal steps are being taken by servicers, who collect and manage loan payments, when a borrower becomes delinquent on a loan.

"We are going to take a close and measured view to ensure that servicers and financial institutions are in compliance with the federal consumer financial laws," Raj Date, the Treasury official leading the bureau, said in a conference call with reporters.

The scrutiny being put on banks' from several agencies could lead to penalties or settlement figures in the billions.

A senior CFPB official told reporters on the conference call the agency has a wide range of actions it can take, including imposing fines, depending on what problems it finds during examinations.

The bureau made the announcement about its servicing focus as it released a broader guide detailing how it will routinely supervise banks and the financial products they provide, such as credit cards and mortgages.

The agency will initially focus its supervision efforts on the 105 banks, thrifts and credit unions that have more than $10 billion in assets.

With regard to mortgage servicing, the agency said that it will first look at home loans in default to make sure the proper information about loan modification programs and the foreclosure process is being provided to borrowers.

Among the areas it will scrutinize is whether a borrower being moved through the foreclosure process is being charged duplicative or illegal fees.

Date said the servicing industry is particularly susceptible to consumer abuses because borrowers can not choose who collects their payments and because servicers do not get paid more to handle foreclosures, which are more time consuming and complicated.

"Given those structural problems, it's no surprise that the mortgage servicing market has been plagued by pervasive and profound consumer protection issues," Date said.

The bureau was created as part of the 2010 Dodd-Frank financial oversight law and it officially opened its doors for business on July 21.

ONGOING PROBES

The servicing issue burst into public view last year when government agencies began investigating bank mortgage practices, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day.

States and the Justice Department are currently trying to negotiate a settlement with Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), Wells Fargo & Co (WFC.N) and Ally Financial.

JPMorgan CEO Jamie Dimon said on Thursday during an earnings conference call that these talks are getting "bogged down."

In April, banks entered into a settlement with the Federal Reserve, the Office of the Comptroller of the Currency and the now defunct Office of Thrift Supervision on steps that have to be taken, such as providing borrowers with a single point of contact for questions.

Banking regulators have said they anticipate a monetary penalty to be issued later, the size of which will depend on the problems turned up by investigations, currently being conducted, into foreclosures initiated in 2009 and 2010.

(Reporting by Dave Clarke; editing by Dave Zimmerman and Andre Grenon)