My mortgage industry experience is unique. While studying to be a mortgage compliance attorney, I worked as a loan origination customer service representative at several major mortgage companies. After getting my foot in the door as a loan officer, I quickly learned I preferred to be on the operational side, assisting borrowers in navigating the loan process toward loan funding.
Now, as a compliance attorney decades later, I still have a soft spot for the art and science of customer service. The customer response process is one of my favorite things to develop and manage for my clients and former employers.
It should come as no surprise that I excitedly reviewed the Consumer Financial Protection Bureau's (CFPB) latest missive, the Consumer Response Annual Report. This report covers multiple facets of complaints, including the number and type of complaints and their corresponding responses, generally and by specific financial products and services.
2023 Report Overview
The CFPB report provides a breakdown of 14 different financial products or services, including credit or consumer reporting, debt collection, credit cards, student loans, personal loans, payday loans, and mortgages.
The report only reflects the "science" of complaints (the number and types of complaints) but does not reflect the art of complaints—understanding borrowers’ motivations, unearthing the facts, and crafting fair and accurate responses.
Unless you have engaged consumers in real-time origination and servicing processes, it is not fair to expect an entity like the CFPB to appreciate how hard it is to align expectations between lender and borrower. Still, they have provided us with information and figures to review.
Understanding the CFPB’s Objective
One of the CFPB’s missions is to facilitate and monitor borrower complaints. Its complaint process is designed to allow companies to provide complete, accurate, and timely responses to their customers.
The CFPB continues by explaining that three elements make up a good complaint response:
Completeness
Accuracy
Timeliness
Responsible companies use complaints not only as an opportunity to engage with consumers but also as an indicator of potential weaknesses in a particular product, service, function, department, or vendor.
I encourage you to consider how best to incorporate the following information into your institutional processes to help ensure that you can detect and address problems early and quickly.
By the Numbers, Generally
Of the approximately 1,657,600 complaints the CFPB received in 2023, it sent about 1,348,200 (81%) to companies for review and response, referred 6% to other regulatory agencies, and found 13% unactionable.
In 2023, the CFPB sent complaints to more than 3,400 companies for review and response.
Per capita, the CFPB received more complaints from Georgia consumers than anywhere else in the United States, followed by consumers in Florida, D.C., Delaware, and Nevada. Consumers in South Dakota submitted the fewest complaints of any state.
Companies responded promptly to 99.6% of the 1.3M complaints sent to them for review in 2023. Approximately 20% of complaints were closed within the initial response period of 15 days, and 99% were closed within the final response period of 60 days. Timely responses are important; however, the CFPB cautions companies about closing complaints too quickly if it is to the detriment of completeness or accuracy.
By the Numbers, Mortgage
2% of the complaints (27,900) were mortgage-related issues. That’s a 4% reduction (1,300 complaints less) than in 2022.
2% of the complaints were closed with monetary relief
3% of the complaints were closed with non-monetary relief
92% of the complaints were closed with explanation
Servicing-Related Complaints
51% (11,400 complaints) were for “trouble during payment process”
The next highest was almost half of that, at 27% (6,100 complaints) for “struggling to pay mortgage”
Origination-Related Complaints
11% (2500 complaints) were for “applying for a mortgage or refinancing an existing mortgage.”
7% (1,600 complaints) related to “closing on a mortgage.”
4% (900 complaints) related to problems with a credit report or credit score (As a side note, the credit reporting agencies received 326,600 complaints for “improper use of your report.” I wonder how many were for mortgage loans and could just as well have manifested on a complaint to the lender).
In Addition, Consumers Reported …
Difficulty communicating with companies during loan servicing, stating they could not reach service representatives
Calls or emails not returned
Receiving inaccurate or conflicting information
Servicer representatives being rude
Payment challenges when exiting forbearance plans, after filing for bankruptcy, and after servicing transfers
Late charges and other fees
Negative credit reporting
Loss mitigation delays
Foreclosure threats
Companies Typically Responded By …
Acknowledging consumer frustration and offering apologies.
Clarifying and reiterating information shared with consumers in prior communications.
Confirming that payments were not made on time, resulting in subsequent payments being deemed late.
Placing payments in suspense accounts until a permanent loss mitigation option was implemented after exiting a forbearance plan.
Providing explanations for incomplete files and inability to process further for loss mitigation.
Interestingly, the CFPB did not highlight any issues concerning loan origination.
Key Takeaways
So what do we make of this report? It seems glaringly obvious that the vast majority of the complaints (76%) are servicing-related and only 22% are origination-related.
There are likely a few reasons for this:
There are more opportunities to fail in the borrower's eye the longer you have the relationship. An originator’s active relationship with the borrower can be measured in days or weeks, while a servicer’s relationship is measured in months or years.
The mechanics of servicing can appear to be counterintuitive. For example, when making an extra payment, a borrower may think he is making two months of payments when, in fact (and generally correctly), the servicer will see and apply the extra payment as a principal reduction.
Issues that arise in servicing could have more grave implications for the borrower than in originations. If one month’s payment is actually or perceived to be short, that will have a cascading effect on the entirety of the payments due and owing in the future. For these reasons, a borrower and servicer may be required to routinely “adjust expectations” in the world of servicing.
Originators should recognize that they may have opportunities to enhance processes. Many misunderstandings concerning credit pulls, dates of loan closings (“end of the month”), refundability of upfront fees, etc., could be avoided if loan officers took a little more time to set borrowers’ expectations correctly.
Action Steps
There is much more to discuss with the figures in the report and the art of customer service, but let me end with this statistic: 92% of the complaints were closed with explanation, meaning that a super high majority of complaints were resolved simply by providing an explanation to the borrower without providing some other form of relief, either monetary or non-monetary.
This means we are getting a lot of things right! No extraordinary action was required by the lenders and servicers (such as refunds or taking steps to remove an inquiry from a credit report) to resolve issues, meaning we made no error. Pulling the consumer towards mutual understanding and aligning expectations is all it took.
However, it also tells me we are not getting it right early enough. Why? If we did not make an error in the origination or servicing of the loan, then why could we not offer this explanation to the borrower the first time around?
The Report stated that 90% of consumers first tried to resolve the problem with the financial institution before filing a complaint. That was the opportunity to provide the explanation the first time and not wait for the complaint from the CFPB.
I recommend taking the following steps:
Identify the primary sources of complaints.
Resolve the underlying issues causing complaints.
Examine whether origination complaints arise during loan processing, sales, or funding.
Assess if general customer service, loss mitigation, or payment application issues predominate in servicing.
Determine the root causes of consumers' incorrect expectations.
Evaluate if understaffing leads to insufficient employee-consumer interactions.
Consider increasing staffing or developing additional resources like websites or recordings to educate consumers on frequent issues.
Investigate whether a lack of training prevents employees from providing accurate responses. If so, train employees on managing misplaced consumer expectations and providing accurate responses.
Monitor calls and complaints continuously, and implement accountability measures to enhance employee performance.
Determine if any employees are deliberately or recklessly providing incorrect responses to simplify their tasks.
Check if departmental silos cause inconsistent responses to consumer inquiries.
Align department leaders to ensure a consistent approach to common concerns.
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