Special Alert: Federal and state authorities take significant actions to address mortgage servicing concerns
Buckley Special Alert
On December 7, the Consumer Financial Protection Bureau, Multi-State Mortgage Committee of state mortgage banking regulators, and every state attorney general took actions against a large nonbank mortgage company for alleged violations pertaining to both mortgage origination and servicing practices that took place largely between January 2012 and December 31, 2015. The Special Inspector General for the Troubled Asset Relief Program also provided assistance as part of the government’s efforts. The settlement will result in approximately $85 million in remediation to consumers, the majority of which has been paid, and $6 million in fees and penalties. The Department of Justice, through its U.S. Trustee Program, also reached settlements with this mortgage company, as well as two national banks, pertaining to alleged violations of the bankruptcy code. Those three bankruptcy settlements will result in approximately $117 million of refunds and credits to impacted borrowers.
Nonbank mortgage servicing complaint and settlement
The crux of the settlements with the CFPB, state attorneys general, and MMC centers around six practices that allegedly resulted in violations of federal and state law:
- Failing to identify at the time of a servicing transfer loans with in-flight modifications, which resulted in processing delays
- Foreclosing on borrowers who had received communications indicating that their foreclosure was on hold while they were considered for loss mitigation relief
- Representing to borrowers on trial modifications that their payments would not significantly increase upon entering into a permanent modification
- Failing to timely disburse tax payments from borrower escrow accounts
- Failing to conduct timely escrow analyses for borrowers in Chapter 13 bankruptcy
- Failing to timely remove private mortgage insurance (PMI) from borrower accounts
The alleged violations outlined in the Bureau’s complaint were brought pursuant to its authority to prohibit unfair, deceptive, or abusive acts or practices, the escrow provisions of the Real Estate Settlement Procedures Act, and Regulation X, and the Homeowners Protection Act. Interestingly, the bureau did not cite the company for any violations related to the mortgage servicing rules that took effect January 2014. To address the Bureau’s concerns, the company agreed to, among other things, enhance practices related to the alleged violations, engage in annual lookbacks for four years, and report over a 10-year period any developments that may affect compliance obligations under the settlement agreement.
The MMC also alleged concerns associated with the timely refund of escrow surpluses, failure to provide notices of loan transfer, failure to obtain regulatory approval to work at certain locations, and inadequate response times to consumer complaints. To address the concerns raised by the MMC, the company agreed to implement a host of enterprise risk management programs, a monitoring and testing program, and also agreed to a set of mortgage servicing standards that largely mirror those from the National Mortgage Settlement entered into by major institutions in the wake of the financial crisis (covered by InfoBytes here).
Nonbank mortgage origination findings
While mortgage servicing concerns frame the majority of issues identified in the MMC settlement, the settlement also describes alleged violations of mortgage origination requirements between at least March 2012 and March 2014. These violations included:
- Failing to properly calculate per diem interest, and in some instances making loans in excess of the usury rate
- Failing to determine a borrower’s ability to repay
- Committing disclosure and record retention violations
- Creating non-compliant advertisements
- Engaging in unlicensed loan officer activity, or failing to obtain approval to work at certain locations
The settlement suggests that a third-party compliance consultant reviewed these issues, and that they have been addressed.
U.S. DOJ trustee settlements
- Perform annual escrow analyses for borrowers in bankruptcy
- File timely and accurate payment change notices (PCNs)
- File timely and accurate notices of fees assessed
- Provide accurate final accountings of the payments made by borrowers during bankruptcy
In addition, the DOJ alleged that the national banks failed to accurately apply borrower payments during bankruptcy, and that one of the national banks failed to file timely and accurate proofs of claim.
To resolve the DOJ claims, each company entered into a memorandum of understanding that requires significant consumer remediation via credits, refunds, and waived fees. The agreements also obligate the companies to take affirmative steps to address the alleged compliance failures.
If you have any questions regarding the actions or settlements, please visit our Mortgages practice page, or contact a Buckley attorney with whom you have worked in the past.