On September 29. 2014 the Consumer Financial Protection Bureau (CFPB) took action against Michigan-based Flagstar Bank for violating the new mortgage servicing rules contained in Section 1024 of Regulation X, which implements the Real Estate Settlement Procedures Act (RESPA), by illegally blocking borrowers’ attempts to save their homes. The loans were primarily owned by investors and were serviced by Flagstar under contract. The consent order alleges the bank took excessive time to process borrowers’ applications for foreclosure relief, failed to tell borrowers when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications.
Under the terms of the CFPB’s consent order Flagstar:

  • Must pay $27.5 million to the approximately 6,500 consumers whose loans were being serviced by Flagstar and who were subject to its unlawful practices.
  • Is prohibited from engaging in violations of the loss mitigation provisions of the CFPB’s mortgage servicing rules and unfair, deceptive and abusive acts or practices in connection with loss mitigation.
  • Is prohibited from acquiring servicing rights for default loan portfolios until it demonstrates it has the ability to comply with laws that protect consumers during the loss mitigation process.
  • For borrowers affected by Flagstar’s unlawful practices who were not foreclosed on, must engage in outreach, including a door knocking campaign and translations services, to contact borrowers and offer them loss mitigation options. And Flagstar must halt the foreclosure process, if one is happening, during this outreach and qualification process for these borrowers. For affected borrowers who were previously denied a loss mitigation option, Flagstar must do an independent review to determine whether they were offered all loss mitigation options for which they qualified. If they were not, Flagstar must offer the borrower those loss mitigation options.
  • Must pay a $10 million penalty payment to the CFPB’s Civil Penalty Fund.

The Bureau’s examinations and investigation found evidence of the unfair and deceptive acts or practices from 2011 to the present. The revised RESPA rules were effective in January 2014. Since January 2014 many of the acts or practices were also violations of Regulation X.
A copy of the 42-page consent order is available here.