When the Consumer Financial Protection Bureau (CFPB) announced last year that it would be publishing consumer complaint narratives on its website, mortgage industry professionals decried the move as unfair and problematic. How could publishing un-verified, un-vetted complaints about the mortgage lenders and servicers possibly improve the industry? Initially, lenders and industry trade groups rallied against the measure, but the CFPB forged ahead, arguing that this was the right thing to do in order to protect consumers.
The CFPB began publishing the narratives in June. The often wordy descriptions accuse mortgage servicers and lenders of refusing to respond to various issues, being incompetent and not caring about their customer service. For its part, the CFPB maintains the database is meant to be helpful to the industry. ‘By adding their voice, consumers help improve the financial marketplace,’ the CFPB states on its website. Lenders and servicers can respond publicly to the complaints on the website, but they are relegated to using a selection of ‘canned’ responses – they simply choose the response that best matches the situation.
It remains to be seen whether these complaint narratives can actually improve the industry. Frank Keating, president and CEO of the American Bankers Association, says, ‘While the banking industry continues to be committed to working directly with customers to resolve misunderstandings and complaints, the public disclosure of unverified consumer complaint narratives doesn't advance that goal and may threaten consumer privacy.
‘We're disappointed that the bureau has chosen to become an official purveyor of unsubstantiated and potentially false information instead of fostering informed and responsible consumer choice,’ Keating told MortgageOrb.
Others say these online comments could damage the reputations of lenders and servicers.
‘A number of banks find that if they don't hear it directly from their consumers, all of a sudden it shows up on a database where anybody can say anything,’ says Gerald A. Hanweck, professor of finance at George Mason University's School of Business. ‘Only the bad comes out in the digital world, not the good.’
Hanweck points out that online reviews are nothing new. Consumers use them to choose everything from restaurants to doctors. The mortgage business is different, though, because sometimes people do not know which entity they should target with their complaints.
‘Many homeowners do not understand the difference between the originator and the servicer,’ Hanweck says. ‘People who take out a mortgage do not know who the servicer is compared to the originator and compared to who might have been the servicer before – and how many times has this loan has been sold.’
That means the vitriol might be aimed at the wrong party.
And the number of complaints is increasing. In its annual report, the CFPB says it received a total of 250,700 complaints from Jan. 1 to Dec. 31, 2014. Most came through the website, but some came by phone or other channels. That's a 53% increase compared to the 163,700 complaints the bureau received in 2013.
What's more, the CFPB says 20% of the complaints it received in 2014 were related to mortgage issues, compared to 37% in 2013.
Of the mortgage complaints, 49% were about problems related to being unable to pay the loan, including issues with loan modifications, collection and foreclosure. The second most common complaint, at 35%, was about payments, including issues with loan servicing and escrow accounts. Only 8% of complaints had to do with applying for the loan.
‘I think the banks ought to take it and sift it and where they believe there is a serious error made by someone, they should go right after the CFPB and ask for a correction, just like you would on your credit report,’ Hanweck says.
Of the 250,700 complaints received in 2014, only 156,600, or 62%, were sent to the companies for review and response. The companies have 15 calendar days to respond before the narrative gets classified as ‘closed with explanation’ or ‘closed with monetary relief,’ for example. The complaint then stays on the website for the public to view – a detail that worries some.
‘It is similar to when social media first came out,’ says Rick Roque, managing director of retail at mortgage lender Michigan Mutual. ‘Companies were very reluctant to embrace social media. They were afraid of customers posting something negative online, and they were afraid of the exposure.’
Over time, companies have learned to monitor and address the negative critiques and can turn a negative into a positive if they address it quickly. Still, the CFPB complaint narrative database is different. ‘It's damaging because lenders feel powerless when complaints are levied,’ Roque says. ‘Consumers hide things in the application, and things come up in the closing.’
For example, he says, borrowers might fail to admit they are in the midst of a divorce proceeding – a detail that was not factored into the underwriting decision and eventually results in denial of the loan. Or, an appraisal indicates that the property is not worth what the consumer had hoped. ‘It makes the consumer angry,’ Roque says. ‘Nine times out of 10, it is something the consumer didn't disclose.’
Roque adds that the CFPB's purpose is to advocate for the consumer, not the lender, so it is up to the banks to be proactive and protect their reputations. ‘Be able to create a scorecard, and know what the complaints are before the CFPB calls you,’ Roque says.
‘Lenders have the opportunity to reach out to consumers to correct or address complaints. If you are not able to, then you are strictly at the mercy of consumers who take advantage of the CFPB's charter and take advantage of statutes to protect consumers.’
‘The database could help servicers see where they need to improve processes,’ explains Keith Gantenbein, owner and managing attorney of Gantenbein Law Firm in Denver. ‘I think the database is a great tool for servicers to see what problems they are having,’ he says. ‘If a servicer sees complaints across the board, wouldn't it be helpful for them?’
Gantenbein says the database might not have much impact on lenders, as many consumers spend more time shopping for clothing and other items than they do for a loan originator. When they do apply for a loan, they often use brokers anyway. As for servicers, he says, ‘I don't think it will impact them, because you don't get to pick your servicer. [And] it will have no impact on consumer decision-making.’
Donald Frommeyer, CEO of the National Association of Mortgage Brokers (NAMB), says the problem with the CFPB's site is that it does not differentiate between originators and brokers. ‘You look and it says 'this broker in Oregon' or 'this broker in California,' and in reality, [it is] a bank,’ he says. ‘The term 'broker' is used pretty loosely.’
He says the NAMB hopes to get the CFPB to change that – but until then, the comments might damage some reputations. ‘If you stop and look at it, every mortgage loan is basically the same. It's Fannie, Freddie, FHA, VA or USDA. For the most part, it's those five, so your reputation is the only thing you have that makes you different from anyone,’ he says.
Nora Caley is a Denver-based freelance writer.