CFPB Mortgage Servicing Settlement
Last week, the Consumer Financial Protection Bureau (CFPB) filed a complaint and proposed judgment against Nationstar Mortgage LLC, doing business as Mr. Cooper, for alleged violations of the Consumer Financial Protection Act, Real Estate Settlement Procedures Act (RESPA), Regulation X and the Homeowners Protection Act. The CFPB announced that its actions were part of joint effort between state regulators, state attorneys general and the CFPB. If the proposed judgment is entered by the court, Nationstar would have to pay:
- About $73 million to redress consumer harm to more than 40,000 borrowers; and
- A $1.5 million civil money penalty to the CFPB.
When combined with the concurrent state actions against Nationstar, the CFPB announced that the total monetary outlay related to Nationstar’s actions should approximate almost $85 million for adversely affected consumers to date and more than $6 million in other fees and penalties.
The alleged conduct at the center of this controversy occurred between 2012 and 2015 and included:
- Failing to identify service transferred loans in existing trial modifications or transferred loans in the middle of the modification process, resulting in borrowers receiving permanent loan modifications only after unwarranted delays or being wrongfully denied for permanent modifications;
- Moving forward with foreclosure and even conducting foreclosure sales after borrowers had submitted workout packages for loan modifications in response to correspondence from Nationstar allegedly representing that foreclosure would be stayed while the workout packages were being reviewed or before any appeal had run its course;
- Increasing permanent modification payments after the completion of a trial plan, a practice that was not permitted under the terms of modification programs being used;
- Failing to disburse tax payments from escrow accounts in a timely manner, resulting in unnecessary penalties;
- Failing to conduct annual escrow account analyses for loans subject to escrow that were in bankruptcy, leading to shortages and deficiencies that neither the bankruptcy court nor the borrowers could anticipate: Section 1024.17(i)(2) of Regulation X exempts a servicer from the annual escrow account statement requirement for loans that are in default, foreclosure or bankruptcy, but it does not exempt the servicer from the requirement to conduct annual escrow account analyses for those loans; and
- Failing to cancel and terminate private mortgage insurance (PMI) as required by the Homeowners Protection Act because of a misreading of the act’s cancellation requirements (e.g., the act requires cancellation of PMI upon receipt of a borrower’s written request if the loan-to-value reaches 80% of the original value of the property and certain other conditions are satisfied, like a good payment history).
The Proposed Judgment
In addition to the monetary consequences described above, the proposed judgment obligated Nationstar to take the following actions:
- Implement policies, processes and controls designed to
- Permit borrowers to submit consumer complaints online;
- Provide borrowers with timely and accurate information about how to submit consumer complaints, notices of error, etc.;
- Have sufficient personnel to review and resolve consumer complaints, notices or error, etc.;
- Consider all information available, including information submitted by borrowers and internal information, when analyzing consumer complaints, notices of error, etc.;
- Document each error alleged in consumer complaints, notices of error, etc. and how the errors were resolved;
- Correct any errors and communicate the resolution to borrowers; and
- Identify the root cause of any errors or issues that Nationstar believes may be caused by systemic issues;
- Conduct annual escrow account analyses at the end of the escrow account computation year as required by section 1024.17 of Regulation X and send escrow account statements and periodic statements that contain accurate information about borrowers’ escrow accounts;
- Pay escrowed items in a timely manner as required by section 1024.17(k) of Regulation X;
- Implement policies and procedures designed to comply with the requirement in section 1024.38 of Regulation X to have policies and procedures reasonably designed to facilitate transfers of information during servicing transfers;
- Refrain from offering permanent loan modifications for which the monthly principal and interest (P&I) payment exceeds the P&I payment under a trial modification, unless applicable law, the applicable modification program or investor requirements permit doing so or the borrower fails to make all the required payments due under a trial modification;
- Implement policies, processes and controls designed to
- Provide accurate communications to borrowers about when PMI may be cancelled or terminated; and
- Cancel and terminate PMI as required by the Homeowners Protection Act; and
- Perform an annual lookback and remediation audit for four years following the effective date of the judgment in order to determine whether any borrowers have received permanent loan modifications with P&I payments that exceed the P&I payments in their trial modifications and redress any consumer harm.
In addition to these actions, the proposed judgment requires Nationstar to submit a compliance plan for review. The proposed judgment also requires Nationstar’s board of directors to take certain actions, including “[a]uthoriz[ing] whatever actions are necessary . . . to fully comply with the [proposed judgment] . . . .” The proposed judgment also includes reporting and recordkeeping requirements.
As mortgage servicing may become a more scrutinized area because of the pandemic and the potential for consumer harm, credit unions may want to review the proposed judgment and the complaint to see whether their policies and procedures are designed to comply with the requirements that led to the complaint and settlement.