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In today's NAFCU Compliance Blog, Regulatory Compliance Counsel Jennifer Aguilar explains the legal basis for action taken by the CFPB against Fay Servicing LLC, a mortgage servicer that engaged in illegal foreclosure practices.

On June 7, the CFPB ordered Fay Servicing to pay up to $1.15 million to consumers it harmed by hiding critical foreclosure relief information. The bureau also found instances where the servicer illegally moved to foreclose on borrowers actively trying to save their homes.

In her post today, Aguilar reviews the applicable laws for mortgage servicers, including Section 1024.38, which generally requires servicers to have policies and procedures in place that ensure the servicer complies with the mortgage servicing regulations, and Section 1024.41, which provides specific requirements regarding all loss mitigation applications.

As Aguilar notes, servicers must provide timely notices and accurate information to borrowers, properly evaluate loss mitigation applications and identify all loss mitigation options available to the borrower.

The loss mitigation rules also prohibit a servicer from taking certain foreclosure actions, including filing for foreclosure or conducting a foreclosure sale, after the servicer have received a complete loss mitigation application.

According to the CFPB, Fay Servicing failed to send the required notices to borrowers. Even when Fay sent an acknowledgement or evaluation notice, these notices did not contain all required information. Fay also did not adequately inform borrowers of their right to appeal a decision. It also failed to establish policies for addressing when borrowers were entitled to foreclosure protections.

These rules, along with a number of other servicing rules in Regulations X and Z, have recently been amended. The changes go in effect in October 2017 and April 2018. For more on these amendments, see NAFCU's mortgage servicing webpageand blogs.

The CFPB's consent order against Fay Servicing can be foundhere.