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CFPB took action against Michigan-based Flagstar Bank and ordered it to pay a total of $37.5 million for allegedly violating the mortgage servicing rules surrounding foreclosures, which the bureau said illegally prevented borrowers from saving their homes.

The bureau ordered Flagstar to stop its violations, pay victims $27.5 million and pay the bureau a $10 million fine.

Bureau Director Richard Cordray said, "The Bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly. Today's action signals a new era of enforcement to protect consumers against the cost of servicer runarounds."

CFPB specifically alleged that the bank:

• closed applications due to internal delays, not borrowers' delays;
• failed to alert borrowers about incomplete applications;
• wrongfully denied loan modifications based on miscalculated income;
• failed to give specific reasons for rejection of applications; and
• gave borrowers incorrect information about the loan denial appeal process.

CFPB also ordered Flagstar to reach out to victims and offer loss mitigation options.