CFPB Targeting Non-Compliant Lender Documents

Lenders who ignore the need for compliant documents could face hefty fines from the CFPB

On September 29, 2014, the CFPB ordered Flagstar Bank to pay $37.5 million in fines due to what it found to be violations of mortgage servicing rules. These fines include restitution of $27.5 million to approximately 6,500 borrowers who were serviced by Flagstar – 2,000 of whom lost their homes to foreclosure and a $10 million civil penalty to the CFPB Civil Penalty Fund.

In addition, the victims of foreclosure have the right to file individual action after the settlement. Regarding these latest fines, CFPB Director Richard Cordray asserts, “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.”

During a 3-year investigation of the Michigan-based lender, the CFPB found that Flagstar did not have adequate resources to administer loss mitigation programs for its borrowers. In 2011, the lender had 25 full-time employees and a third party vendor based in India handling over 13,000 active loss mitigation applications. With these limited resources, it was taking up to 9 months for a single application to get through the review process. Customers calling into the service center were experiencing wait times in excess of 30 minutes and, since the review process was so lengthy, many of the required documents expired before the application had been reviewed.

Even though the CFPB’s new mortgage servicing rules have only been in effect since the beginning of 2014, Flagstar’s actions constituted Unfair Deceptive Acts and Practices (UDAPs) under the Dodd-Frank Act. Under the CFPB’s mortgage servicing rules, lenders must notify borrowers about their loss mitigation options via written notice after the borrower misses two consecutive payments. The notice must include examples of options that could serve as an alternative to foreclosure as well as instructions to the lender on how they can obtain more information. In addition, the new CFPB rules require that lenders provide delinquent borrowers direct and ongoing access to contact center personnel who are tasked with assisting them by alerting them about any missing information found on loss mitigation applications, keeping them aware of their application status and expediting the processing of the application. 

With regulatory compliance requirements continuing to weigh on lenders, the ability to deliver timely messaging that is clear, compliant and relevant is imperative and leads not only to increased customer satisfaction and retention, it also eliminates the risk of costly fines for non-compliance violations, like those assessed against Flagstaff Bank.

CEDAR is joining CEB to host an informative webinar on Wednesday, October 7th at 11am, EST. This presentation, entitled “Are Your Loan Servicing Documents Ready for a Compliance Audit?”, CEB analyst Craig Focardi and CEDAR CEO Pete Kenning will discuss how lenders can support complex, document-based service interactions that will also help institutions maintain compliance throughout all loan servicing transactions. You can learn more and register for this complimentary webinar by visiting the CEB website. Find out more about how CEDAR’s customer communications management solution has helped lenders re-engineer their communications.