The CFPB has announced its first enforcement action for violations of the CFPB’s new mortgage servicing rules. The CFPB said on September 29 that it has entered into a consent order with a bank that the CFPB determined was blocking home mortgage loan borrowers’ attempts to avoid foreclosure in violation of the mortgage servicing rules that went into effect in January 2014. Under the consent order, the bank will pay a civil money penalty of $10 million to the CFPB, and will pay restitution to consumers of approximately $27.5 million. The CFPB determined that the bank took excessive time to process borrowers’ applications for foreclosure relief, failed to tell borrowers when their applications were incomplete, denied loan modifications to qualified borrowers, and delayed finalizing permanent loan modifications. The bank was engaged in administering foreclosure relief programs provided by the owners of home mortgage loans serviced by the bank. Specifically, the bank was responsible for soliciting borrowers for these programs, collecting their applications, determining eligibility, and implementing loss mitigation programs for qualified borrowers. The CFPB found that the bank had failed to devote sufficient resources, including staff, to administering the loss mitigation programs for distressed homeowners. Although the CFPB’s new mortgage servicing rules have only been in effect since January, the CFPB found that certain of the bank’s foreclosure relief practices predating the effective date of the rules nevertheless constituted UDAPs under the Dodd-Frank Act.
Nutter Notes: The CFPB’s mortgage servicing rules require mortgage servicers, including creditors servicing their own loans, to notify borrowers about their loss mitigation options after borrowers have missed two consecutive payments. The servicer must deliver a written notice to the borrower that includes examples of options that might be available as alternatives to foreclosure and instructions on how to obtain more information. The new rules also restrict so-called dual-tracking, in which the servicer moves forward with foreclosure while simultaneously working with the borrower to avoid foreclosure. The rules prohibit servicers from starting a foreclosure proceeding if a borrower has already submitted a complete application for a loan modification or other alternative to foreclosure and the application is still pending. Servicers cannot make the first notice or filing required in the foreclosure process until a home mortgage loan account is more than 120 days delinquent under the rules. The rules require servicers to implement policies and procedures to provide delinquent borrowers with direct, ongoing access to employees responsible for helping them. Such personnel are responsible for alerting borrowers of any missing information on their loss mitigation applications, telling borrowers about the status of any application, and expediting application processing. In this case, the CFPB found that, among other things, the bank took excessive time to review loss mitigation applications, often causing application documents to expire, closed applications due to expired documents even if the documents had expired because of the bank’s delay, and delayed approving or denying loss mitigation applications.