In September, the Consumer Financial Protection Bureau (CFPB) handed Flagstar, a Michigan mortgage-servicing bank, a $37.5 million dollar fine for illegal practices.
CFPB Standard for Mortgage Servicing
The regulatory agency justified this hefty fee by outlining what a mortgage servicer should be, and what Flagstar was not. Richard Cordray, CFPB director, said that mortgage servicers are “the link between a mortgage borrower and a mortgage owner” and are therefore extremely important in the process of purchasing a home. Borrowers need to be able to trust that their mortgage servicer has their best interest in mind.
Mortgage Servicers: What Not To Do
In the press release concerning their action, Cordray said, “Flagstar took excessive time to process borrowers’ applications, did not tell them when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications.” As a result, several borrowers went into unnecessary and undeserved foreclosure on their homes.
Cordray also mentioned that this action by the CFPB’s was the first of many to come, signaling a “new era of enforcement to protect consumers against the cost of servicer runarounds.”
This was a shot across the bow, a warning for any mortgage servicer who does not strictly adhere to the law. Mortgage servicers must evaluate their existing practices and procedures and prepare to be audited by regulators to meet the new onboarding regulations.