CFPB Exam Points to Potential Reverse Mortgage Servicing Problems

The Consumer Financial Protection Bureau (CFPB) released the 18th edition of its Supervisory Highlights on Tuesday, which includes examinations of reverse mortgage loan and manufactured home loan servicers. CFPB examinations yielded information concerning activities which either appeared to result in deceptive practices or resulted in violations of Federal consumer financial laws.

The document also includes findings related to auto loan servicing, deposits and remittances, and covers the agency’s larger supervision activities completed primarily between June and November of 2018.

Misrepresenting requirements for HECM foreclosure timeline extensions

In reviews focused on the servicing of Home Equity Conversion Mortgage (HECM) loans, the CFPB found that some successors – heirs of a deceased borrower – did not receive a complete list of all the documents that would be needed to effectively evaluate them for an extension, which can enable successors to purchase or market the deceased borrower’s home for sale without losing insurance provided by the Department of Housing and Urban Development (HUD).

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“Some of these successors returned the form indicating their intentions to purchase the property or market the property for sale, but did not return all the documents that were needed for the evaluation,” Supervisory Highlights reads. “As a result, the servicer(s) did not seek an extension for these successors.”

Instead, the CFPB found that servicers assessed foreclosure fees which led, in some instances, to foreclosures on affected properties. While the CFPB specifies that this doesn’t amount to violation of law, it could pose a risk of a deceptive practice. It could do this by giving, “the net impression that the statement of intent was all that was needed, until further notice, to delay foreclosure, when in fact that was insufficient to delay foreclosure.”

The CFPB recorded an industry response to the examiners’ findings, in which the servicers planned, “to improve communications with successors, including specifying the documents successors needed for an extension and the relevant deadlines.”

Overcharging consumers

CFPB examiners also, “identified unfair acts or practices for charging consumers unauthorized amounts, deceptive acts or practices for misrepresenting aspects of private mortgage insurance cancellation, violation(s) of Regulation X loss mitigation requirements, and potentially misleading statements to successors-in-interest on reverse mortgages,” the document reads.

Mortgage notes featuring limits to the amount of late fees that could be collected had, in actuality, been charging late fees that exceeded those limits. The document notes “programming errors in the servicing platform and lapses in service provider oversight.” That oversight caused “substantial injury” to consumers since they were compelled to pay more in late fees than what was required by their mortgage notes.

“In response to the examination findings, the servicer(s) conducted a review to identify and remediate affected borrowers,” the document reads. “The servicer(s) also changed policies and procedures to assist in charging the late fee amount authorized by the mortgage note.”

Other observations

Among the other observed supervisory highlights in the mortgage space, the CFPB noted misrepresentations of reasons for denying private mortgage insurance cancellations, failures to exercise reasonable diligence to complete loss mitigation applications and failures to refund fees and taxes upon delayed availabilities of remitted funds.

The document also includes a rundown of enforcement actions taken on entities including payday loan businesses Cash Tyme and Cash Express LLC, as well as State Farm Bank and Santander Consumer USA, LLC. Also noted in the document are recent CFPB rules and guidance, undertaken by previous acting director Mick Mulvaney prior to the confirmation of current director Kathleen L. Kraninger.

Read the full Supervisory Highlights document.

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