3 minute read | December.08.2020
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:
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:
The settlement suggests that a third-party compliance consultant reviewed these issues, and that they have been addressed.
U.S. DOJ trustee settlements
The DOJ settlements entered into by the nonbank mortgage company and two national banks (available here, here, and here) address alleged failures to:
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 contact an Orrick attorney with whom you have worked in the past.