In what is certainly an indication of its enforcement priorities
as well as a warning to mortgage servicers, the CFPB recently announced its first enforcement
action for violations of its Mortgage Servicing Rules, which went
into effect last January and impose a variety of requirements on
In a consent order issued against Flagstar Bank,
F.S.B., the CFPB cited multiple legal violations by Flagstar in its
default servicing practices, all in the area of loss mitigation.
The order requires the bank to pay $27.5 million in damages, at
least $20 million of which will be distributed to foreclosed
customers. In addition, the CFPB assessed a $10 million civil money
penalty and placed a temporary prohibition on the bank's right
to acquire servicing or sub-servicing rights on defaulted loans
until it implements a compliance plan as set forth in the consent
The consent order cites four main violations by the bank since
the rules went into effect:
Failure to provide the required loss mitigation acknowledgement
letter to a consumer within five business days of receiving an
application pursuant to 12 C.F.R. § 1024.41(b);
Failure to evaluate loss mitigation applications within the
30-day period prescribed in 12 C.F.R. § 1024.41(c);
Failure to properly notify borrowers of their right to appeal
under 12 C.F.R. § 1024.41(c) and (h), specifically by
incorrectly informing borrowers that the right to appeal exists
only in certain states and by failing to provide some borrowers the
required appeal form; and
Failure to maintain reasonable policies and procedures under 12
C.F.R. § 1024.38, including vague and contradictory guidance
in the bank's procedure manual and the policies' practical
failure to ensure the bank's compliance with the Mortgage
In addition, the consent order encompasses many violations of
the Consumer Financial Protection Act (CFPA) that occurred before
the CFPB's Mortgage Servicing Rules became effective.
The enforcement action comes as no surprise, but it gives
servicers a clear indication of the kinds of issues attracting CFPB
scrutiny and sends a clear message that strict adherence to these
rules is the expectation. Indeed, CFPB Director Richard Cordray has described it as "a new era of
enforcement." Expect to see more CFPB enforcement activity on
mortgage servicing issues in the future.
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